Alan Cleary - Managing Director of Precise Mortgages
It’s been interesting to watch how the specialist and short-term lending markets have evolved over the past few years. Increasingly, providers have moved away from trying to be all things to all people and focused instead on serving niches. How different providers approach this though is telling.
It’s not the first time I’ve raised this, but it’s worth raising again. Brokers and lenders both have to be careful about who they work with, and that’s especially true in the specialist end of the market where not everyone is regulated to the same degree. That’s not to say that unregulated always means bad and regulated good. But where you’re dealing with smaller players, it pays to do your research.
As a lender, we want a good and healthy level of competition in the market. It makes everything work better from funding to product to service and ultimately competition helps the borrower get the best deal.
Healthy is the critical thing in there though. It’s in no-one’s interests to see the specialist market become dogged with the problems that inevitably result from lending too much to the wrong sort of borrower or deal with too little or lax underwriting. I’m increasingly nervous that, in the pursuit of so-called niches, this is where some in this market are heading.
Short-term finance is a far tougher business to make money in than it was 10 years ago. Then, there was one product, a bridging loan, and one price which fit all policy. Today, there is regulated bridging, unregulated bridging, light refurb, heavy refurb, auction finance, development finance, VAT bridging, bridge-to-let and a range of rates to match.
Diversifying and seeking out these niches has worked to the market’s advantage. Figures compiled by the ASTL for Q2 2018 showed annually, completions rose by 27.2 per cent, hitting £3.87 billion1. A growing market is good where it means that we are supporting sustainable developments and bringing quality housing stock back onto both the owner-occupied and lettings markets. Where growth is fuelling projects where arrears become a problem, where developments cannot be completed or where loans are not repaid in full as a result of profits being wiped out, the market has a problem.
As it stands, we’re not in this position, yet. But the proliferation of new short-term lenders claiming to have launched in response to an un-met demand for finance should be something the industry keeps its eye on. Similarly, raising funds through peer-to-peer investment has proven a hugely popular approach for many in the market, and for many, clearly it works. However, alarm bells should also start to ring faintly when every lender that cannot raise funds elsewhere repositions itself as a hipster P2P platform.
So I’d reiterate, it pays to know who you’re dealing with – particularly at a time when making a profit in the property market requires skill, judgement and experience. The old adage remains true: anyone can lend money, it’s much harder to get it back.