The transition market has returned to pre-pandemic criteria and loan-to-value limits, and more lenders are expected to enter the sector to take advantage of renovation and buy-to-let opportunities.
Talk to Specialized Loan Solutions, Richard Lawton, Head of Bridges at Precise Mortgages (illustrated) said that overall the relay industry has returned to pre-pandemic levels in terms of criteria and loan-to-value (LTV), which have been brought under control during the pandemic.
Lawton explained that during the pandemic, although the transitions market has “worked well”, criteria and LTVs have been limited due to “unprecedented times of uncertainty”. He added that this was particularly the case for Relay as it had a “risk-based approach to lending”.
He added: “The exit from the bridge is usually a sale or a refinance and during the pandemic no one knew how these would be affected and whether the deadlines could be increased.
“People saw their costs skyrocket due to the rising cost of materials and there was uncertainty about whether tradespeople would be available or allowed to enter people’s properties during the lockdowns.”
He noted that optimism was now growing among lenders and that several were looking to expand their offerings further. This included Precise Mortgages and Lawton hinted there would be a number of key developments in his proposal over the coming year.
“The relay industry is the most diverse and growing area of financial services, so I think we will see an increase in the number of lenders in the industry. I see that as a positive – a huge positive. An increase in competition is good for the industry, the more lenders and even brokers entering the space,” Lawton said.
He said areas of opportunity for bridge lenders included private landlords and property developers using bridge financing to acquire and develop properties for sale or to hold in the portfolio.
Lawton said Precise Mortgages was already seeing increased demand from property owners and developers for bridge financing and added that changes to permitted development rights would allow “additional redevelopment of main streets and change in use of the commercial to residential.
“The housing market is seeing an increase in demand for private rental purchases and with the lack of properties being built, the need for transition is going to be greater,” he noted.
He added that sustainability and energy-efficient homes were a “hot topic” and said bridges could increasingly be used to retrofit homes to improve energy efficiency. Lawton said this would apply to both the owner-occupied and buy-to-let markets.
Lawton said economic uncertainty over the coming year due to rising inflation, rising costs of living and the lingering aftermath of conflict in Ukraine presented a challenge for the relay market.
He explained that, especially given the economic uncertainty, candidates should enter a transaction with an idea of the costs, especially since these could increase.
“We have seen situations in the past where they [applicants] have renovated a property and we were told the costs would be £20,000 and due to rising raw material costs which quickly rose to £25,000 and £30,000. It’s a question of whether the applicant and the broker factored those additional costs into the transaction to see if it’s still financially viable for their clients to proceed,” he said.
“The biggest elephant in the room is that the transition is expensive”
Lawton said bridge financing was something brokers should “keep in mind” because it was diverse and the experience of specialist lenders meant the market would help customers with a wide range of financial needs.
“As many brokers realize the benefits of having bridges in their arsenal, they will see the competitive advantage they have over other brokers who don’t use or want to use bridges,” he said. .
However, he added that there are misconceptions about bridge financing, the main one being that it is expensive.
“The biggest elephant in the room is that the transition is expensive, which mostly comes from brokers or borrowers who have never used it before or who may have had negative experiences in the past,” a- he declared.
Lawton said the bridge market has “evolved and grown enormously” over the past decade and has “moved from a niche product offering to a more mainstream offering.”
Precise Mortgages entered the market in 2010, aiming to improve standards and increase transparency according to Lawton.
It did so by offering documentation that detailed the overall costs and introducing interest on the retained net advance or accrued interest as opposed to the gross advance. This meant that no additional interest on top of the interest on the loan was charged, which Lawton said was “cheaper and fairer to the plaintiff as a whole”.
He added that overall, the vast majority of lenders in the space were charging customers fair interest.
Lawton called for more education and communication about bridge financing as a solution, and said partnering with specialist brokers and packers could help some brokers feel more comfortable with it.
He said: “More open communication is needed between all parties, whether applicant, broker, lender or solicitor, the better the communication, the smoother and faster the transaction will be.
“Not all transactions are seen as ‘vanilla’, there will always be quirks and issues, but the sooner we know about them the better and we can try to find a solution to the funding request.”
He said Precise Mortgages’ transition team had a combined 350 years of work in the industry, so it was likely the “quirk” had already been seen and the lender would be able to help.