Peaks or troughs in one product area are often mirrored across others – the oft-cited example tends to be between mortgages and protection whereby a strong mortgage market for advisers often means less time to spend on the protection needs of a customer. It sounds counter-intuitive because you would think that protection is a natural bedfellow to the mortgage but it appears that, in ‘boom’ times for mortgages, both product areas are often sent off to separate beds.
That correlation between mortgage sectors is clearly on the FCA’s mind at the moment. I read with interest the stories coming out of the recent FSE Midlands show where Lynda Blackwell gave her key-note address. Clearly, there is some concern at a regulatory level about the impact of a dampened buy-to-let market which has clearly had the brakes put on it by both Government and regulatory intervention.
Blackwell ran through a list of potential product sectors which might see a boost from both lenders and advisers seeking other areas to secure margin and business from. It would seem that in certain areas, notably credit-impaired mortgages, right to buy and debt consolidation there has been a discernable increase in business levels, particularly from intermediary sources.
It won’t surprise you to learn that the regulator views these as somewhat high-risk so it is unlikely to be too enamoured of lenders and advisers upping their ante in these sectors. Interestingly, bridging finance was not highlighted but I don’t think you need to look too far into this to see a future whereby bridging activity is boosted because there is less buy-to-let business being written.
Certainly, the recent new rules for buy-to-let mortgage underwriting from the Prudential Regulation Authority (PRA) are designed to further dampen down lending. Tightened stress testing on rental income, which is to be introduced from the start of next year, and other requirements necessitating heightened underwriting – particularly for portfolio landlords – will not only make the process longer but are likely to mean a drop in the maximum landlords can borrow. Again, it’s perhaps not surprising that landlords are being urged, where possible, to remortgage now or at least secure their offers now, because a few months down the line the levels of lending available are likely to have been curtailed considerably.
It’s in this future environment that we may see a clear and growing demand for bridging products. I’m reminded of that post-Credit Crunch period when lending activity dried up in many product sectors and those left relatively unscathed and ‘open for business’ saw considerable increases in demand.
In that respect it was interesting to read the results of the latest survey from MTF which suggested only 13% of brokers have experienced a rise in bridging loan volumes in the last quarter, with 61% saying there had been no change, and 26% had seen a drop. While this didn’t totally chime with our own activity – we have seen a considerable rise in enquiries since the Brexit vote – my own view is that the much more strict approach to buy-to-let underwriting might well increase bridging activity in the first half of 2017 and beyond.
After all, again according to the MTF research, mortgage delays were found to be one of the main reasons why clients took out a bridging loan – it’s widely anticipated that the paper trail alone for buy-to-let is going to be increased considerably next year, and the information required will fill a filing cabinet. One can’t help think that in this environment mortgage delays will grow and the need for bridging and development finance may well increase.
Overall, despite the topsy-turvy nature of our politics, our economy, our future as a country, I’m still positive about the prospects for this sector’s future. My belief is that the demand for bridging loans is not going to fall back and, if anything, the underlying features of securing finance may go further in its favour. In that respect, we would urge advisers to make sure they have access to the market either themselves or through a respected specialist. The clients you see now may well thank you for your bridging loan knowledge and relationships when this new regulation bites.
