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Deals offering best returns require forethought and up-front investment

03 January 2019

Alan Cleary - Managing Director of Precise Mortgages

Brokers are a resilient bunch and can usually find ways of getting through lean times when they arrive. The specific approach will vary depending on a broker's experience, expertise and the network they may belong to. It could be that a quieter quarter makes time for that back-book contact strategy that never quite hits the top of the priority list. It might be time to revisit protection sales for those buyers who didn't consider life cover fundamental two years ago, but have since had children and would now really understand its value.

One area that I think offers brokers considerable opportunity is in buy-to-let, a sector that is now fraught with complexity. Not only can intermediaries offer invaluable advice to clients unsure of what to do with their existing portfolios, there's also some interesting innovation out there that can support clients looking to invest in buy to let today. There are an increasing number of products out there that cater to this type of scenario – and I’m absolutely not talking about ‘flexing’ criteria. No.

Instead, I'm talking about helping clients to understand how to add value to a deal over time in order to create a property that does fit lenders' criteria. Increasingly, it's not enough to buy a property with a buy to let mortgage, give it a lick of paint and expect a decent yield. The deals that we see that offer landlords returns worth having require a bit more forethought and some investment up front to add capital value and maximise rental incomes.

Until very recently, funding this was a trickier business than applying for a buy to let loan and would typically require a short-term loan alongside the buy to let. It could have been seen as a lot of work for a broker not used to bridging, especially when there was a steady stream of first-time buyer enquiries filling up the diary.

Now, it's possible to do this type of deal in one application; we launched our refurbishment buy to let because of precisely this challenge. In a market where the bread and butter deals are fewer and further between, and where clients have to be smarter to stay in the profit-making game, it can really pay for brokers to take another look at those areas that sit beside your usual remit.

At a time when the majority of news surrounding this market is subdued at best, it could allow you to give your clients something to really smile about.

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Mortgage market still looking strong and stable

18 December 2018

Alan Cleary - Managing Director of Precise Mortgages

What a shambles. Far from the gentle wind down to Christmas, the end to 2018 has been, frankly, chaotic.

The political situation is still up in the air and rather than getting anywhere closer to some sort of resolution on the Brexit debacle, it feels as though every day throws yet another spanner into the works.

We've seen not just one but two occasions where the Prime Minister has been held in contempt of Parliament, refusing to publish the legal advice on her Brexit deal and then pulling her vote on it without reference to ministers because she knew she'd lose.

She survived a vote of no confidence and then went back to ask Europe to reconsider the Northern Irish backstop.

She was sent home and still looks set to lose the vote she would have lost had she held it. Britain's credibility on the international political stage looks, at best, shaky.

So it's very reassuring that the British public seem pretty unfazed. They are getting on with life.

Admittedly, 2018 was challenging for the high street and house prices are definitely softening in London and the south east, but it's really not that bad out there economically speaking.

The mortgage market is looking pretty healthy considering. The latest figures from UK Finance1 showed a quieter than usual September with lending down year on year across the board.

New first-time buyer mortgages completed in the month fell by 4.5 per cent on the same month a year earlier. Home mover mortgages completed in the month were also down, by 8.4 per cent. Buy-to-let purchase was down 18.8 per cent and remortgage on both residential and buy-to-let was pretty flat.

At the start of Q4 it did feel like the market was a bit spooked by Brexit and September did see transactions stall. But things had picked up by the end of the year, perhaps by more than is usual for this time of year.

October’s figures were much stronger with remortgage up 23.2 per cent on the same month a year earlier. First-time buyer mortgages also bounced back, up 8.2 per cent on the same month a year earlier while home mover mortgages completed in the month were 4 per cent higher on the previous year.

Brokers have a healthy pipeline going into the New Year, transactions are steady and price inflation slowing down isn't actually all that bad. Improving affordability in a market that has been stretched to its limit for years will be music to would-be homeowners' ears.

2019 is likely to be another eventful year, and it would be helpful if the government could put Brexit to bed once and for all.

However, as far as the mortgage market goes, I think 2019 will be fairly steady.

People are still having children, getting married, divorcing and dying, and that means houses are being bought and sold. The anticipated base rate rises should support healthy remortgage levels in the residential market next year, while in buy-to-let, portfolio rebalancing will continue to be the dominant theme.

This backdrop is important for those specialising in the short-term side of things too - the health of both the residential and buy-to-let markets is paramount to maintaining the flow of exit options for developers using bridging to fund refurbs.

While government and the political situation in this country may be anything but, at least the mortgage market is looking strong and stable going into the New Year.

Source: 1https://www.ukfinance.org.uk/mortgage-market-softens-following-period-of-strong-growth/

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Buy to let specialists are thriving

29 November 2018

Figures recently included in the latest Mortgage Market Tracker1 from the Intermediary Mortgage Lenders Association suggest brokers saw the largest drop in business volumes in the third quarter of 2018 than they’ve experienced in more than two years.

Alan Cleary - Managing Director of Precise Mortgages

This hasn’t been our experience in 2018 at all, which is most likely down to us deliberately taking a strategic approach to our positioning. Even in a market where buyers, movers and developers are choosing to sit on their hands, we’ve concentrated on areas of the market where we know we can add significant value.

There are a number of trends that have affected the shape of lending in 2018, the most significant being the impact of changes in taxation and affordability testing in the buy to let market. The reduction in tax relief on buy to let mortgage interest and the tougher stress-testing rules from the Prudential Regulation Authority are beginning to have a visible effect on lending trends. Limited company buy to let has been a big win for us this year, as has our commitment to offering flexible affordability criteria to landlords with other sources of income.

Adding value to investment properties at the outset has also been a focus for landlords increasingly this year. We’ve helped landlords by adapting our application processes for short-term bridge to let and launching our new Refurbishment Buy to Let proposition which features a double proc fee and single application. We believe this demonstrates both our commitment as a lender to supporting our borrowers and introducers, and also illustrates the value that a specialist lender can offer in today’s market.

Buy to let remortgaging has been a significant part of the market this year, and that's not accounting for product transfers in buy-to-let. The big high street lenders have necessarily had to focus on retention in 2018 as margin pressures have got tougher and transaction volumes have remained subdued.

That has opened up an opportunity for specialist lenders to plug the gaps created by these shifts. We're big enough to make a meaningful difference to the supply of specialist buy to let finance and nimble enough to be able to flex our criteria and underwriting to adapt to the needs of borrowers in a changing market.

What’s in store for 2019? Well, that remains to be seen. But I suspect that it will be a year in which smaller specialists continue to thrive. And, rest assured, that we will remain committed to supporting brokers and borrowers whose needs are not being met on a high street increasingly under pressure.

Source: 1https://www.thisismoney.co.uk/money/mortgageshome/article-6429325/Mortgage-lenders-offer-bargain-deals-Brexit-winter-worries-weigh-housing.html

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Industry must keep its eye on the proliferation of new short-term lenders

29 November 2018

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.

Source: 1http://www.theastl.org/index.php/13-news/201-astl-quarterly-results-steady

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Why the holiday let market makes a lot of sense

22 November 2018

Alan Cleary - Managing Director of Precise Mortgages

It seems unusual to be talking about holidays in November – unless of course you’re lucky enough to be jetting off in search of some sunshine or taking to the slopes in the depths of British winter.

But I want to talk about holidays, the sort that Brits take at home. The past 18 months have brought more uncertainty to both the housing market and UK economy than we’ve seen for many years.

Since Britons voted in favour of leaving the European Union back in 2016, the value of the pound has sunk and the latest assurances on Theresa May’s government securing a good deal ahead of our exit in March 2019 (or later as it now appears could be a possibility) have done little to shore up confidence.

The government has also, simultaneously, stuck to its guns on the phasing out of tax relief on mortgage interest for buy-to-let landlords letting to tenants on assured shorthold tenancies. By all accounts, the strain is starting to show with the Ministry of Housing figures revealing landlords offloaded 3,800 properties a month in 20171.

Like the rest of the market, at Precise Mortgages we’ve seen more purchases through limited company structures as a result and increased appetite for investment outside the capital and in HMOs and multi-lets. There’s also been another, smaller scale shift in the buy-to-let market with landlords increasingly considering holiday lets as a logical move.

The most obvious driver of this is holiday lets’ exemption from the changes to tax relief; while landlords letting on ASTs must now pay tax on their revenues and then claim back a tax credit, holiday let landlords are still eligible for full tax relief on buy-to-let mortgage interest. The cost of furnishing holiday lets can also be written off for tax purposes against the remaining profit.

For landlords considering this route, there’s been at least some consolation in the pound’s poor performance and the ongoing uncertainty around the terms of Britain’s exit from the EU. More Brits are choosing to stay at home for their holidays.

Research conducted earlier this year by Travelodge2 suggested the average spend on this year’s stay at home holidays will be £823 – up 37 per cent from last year. According to Travelodge, 85 per cent of us now take three ‘staycation’ breaks a year on average and 38 per cent of Britons want to holiday in the UK rather than Europe in order to support our economy.

Part of our ethos is to help challenge the status quo in the market, within clear regulatory and risk parameters. The holiday market is one which has historically been underserved by lenders, but we think it makes a lot of sense for both landlords and for ourselves.

It’s a small chink of light in the buy-to-let sector, which has been fighting hard to deal with raft upon raft of regulatory change over the past few years, but, if done right, there’s money to be made and signs that it’s a market with increasing domestic demand.

Sources:
1https://www.landlordtoday.co.uk/breaking-news/2018/8/btl-landlords-offload-almost-4-000-properties-a-month
2https://www.travelodge.co.uk/press-centre/press-releases/We-are-Staycation-nation

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