Property Finance – Market Update
Last week the Chancellor announced UK homeowners could expect mortgage payments to increase by an average of £1,000 per year as interest rates are predicted to rise to 2.5%. As the Bank of England raise the base rate from 0.75% to 1.0% in a bid to tackle record levels of inflation, we asked Pilot Fish Directors how the situation is impacting the commercial markets.
Alice Williams, Pilot Fish Director and property finance specialist shares what she is seeing in the bridging and development space.
What trends are you seeing across the property lending space?
Bridging and development products didn’t experience any knee jerk reactions following the increase to base rate and the market remains buoyant.
We are seeing further scrutiny from lenders when assessing development exit strategies. This is particularly key for developers looking to refinance to long-term investment products. In this instance, lenders are keen to establish the viability of financing the investment property from the outset i.e., ahead of an offer for a bridging or development facility. Our specialist teams work closely together to map out all the required financing from the outset to ensure your exit mortgage is viable.
Have you seen rates increase?
Rates across bridging and development products remain stable. Many lenders in this space source their funds from private investors or from overseas who don’t appear to have been adversely impacted by UK rate hikes.
We are seeing competition in the market begin to slow down. As we emerged from lockdown, the bridging and development space saw huge competition as lenders fought to win business via low interest rates and high leverage. It is likely these rate drops are nearing their floor and it is unlikely rates will continue to drop significantly further.
Do you expect to see further changes over the next 12 months?
Lenders are likely to become more cautious over exit strategies. When assessing a deal, developers will need to know their exit and ensure there is sufficient headroom.
It is possible we will see rates start to increase in the bridging and development space over the next 12 month as the impact of the increasing base rate begins to trickle through, and we have more clarity surrounding economic sentiment as a result of the significant inflationary pressures.
What can property developers do to best prepare?
Developers should make sure profit margins are not squeezed too tight. Work towards a minimum profit % of GDV that you are comfortable will allow you to execute your desired exit (i.e. at least 25% profit on GDV if looking to release all personal equity injection on refinance).
Likewise, don’t be afraid to walk away from a scheme if it isn’t going to deliver enough headroom to allow for market volatility and movement.