Our Head of Engagement, Catherine Lidgley, sat down with Director of Property, Alice Williams, to find out what we are seeing in the lending market and what 2021 is likely to have in store for property investors.
Catherine: Are we still seeing the effects of the pandemic on the property lending market?
Alice: The property market was remarkable in 2020. As we entered lockdown 1.0 we saw the lending market close almost completely. Upon its return we faced a turbulent ride with almost daily changes to policy, appetite, leverage and rate.
Pent up demand, coupled with government support initiatives in the residential sector saw transactions soar in Q3 and Q4.
The residential development and investment sector began to stabilise towards the end of the year, and it was comforting to once again see consistency in product availability.
The commercial property offering continues to be more challenging. There is reduced appetite, particularly in the retail, leisure, and hospitality markets. Despite this, there is still commercial development and investment lending available. It may not be at the rate nor the leverage of pre pandemic levels yet and you need a broker to help navigate a reduced pool of lenders in this area.
Catherine: As we step into 2021, what insight, tips or advice would you offer to investors?
We have seen a change in lender appetite. Gross Development Value was typically 65% pre-Covid. Whereas now 60% appears to be more commonplace. This is not to say 65%, or even 70%, cannot be achieved for the right deal, however there are a reduced number of lenders offering this.
2. The investment mortgage market remains active. There are plentiful products available to support anyone from first time landlords/first time buyer, to serviced accommodation operators. Valuations continue to be returned mostly at the values our clients were expecting. Lenders who previously accepted investment valuations are continuing to do so.
Rates in the commercial investment space haven’t recovered their pre-pandemic levels yet. However, we are seeing a wide range of choice available to investors. If you undertook a CBILS or bounce back loan last year, be prepared to answer questions from lenders when applying for a mortgage in the coming months.
3. We’re likely to see a rise in the use of alternative lenders. Many High Street banks have withdrawn their product offerings in response to the pandemic. You may find your High Street bank cannot support your project.
This creates a great opportunity to explore the plethora of lenders available off the High Street. Alternative lenders typically offer higher loan to values with incredibly competitive rates.
4. We’re likely to see an increase in the number of commercial to residential conversions. The pandemic has accelerated changes in our retail sector and caused us to readdress the balance of home working versus office working. This leaves us with a surplus of retail and office space in prime locations.
There will be opportunity for conversion and regeneration projects this year. Savvy investors will be on the lookout for cheap assets with an eye on what they could become. We have a surplus of lenders keen to lend on conversion schemes, meaning very competitive rates and leverage can be achieved.
5. We are experiencing lots of movement in the market. As the conditions and perimeters of the pandemic change, so too does the lending market. Products and financing options are moving quickly and changing daily. Expect some volatility in the market and be prepared for your deal to take a little longer than usual. You can combat this by getting ‘finance ready’ ahead of your application to speed up the process.
There is all the more reason for property investors to speak to an experienced advisor this year. The market is extremely fluid at the moment; product availability and offerings are continually being updated so seek advice on your funding options.
Want to find out what’s in store for business owners? Read our interview with Pilot Fish Managing Director, Richard Jones.