Pension regulation boosts BTL?
The unexpected intervention by the Chancellor in the Budget, announcing the unshackling of the way in which pension lump sums can be taken, has put a glint in the eye of BTL lenders as they anticipate a sharp growth in the sale of property for rent with new landlord pensioners looking for suitable investment vehicles. The knock on effect is very likely to filter down to the bridging market and add to the flourishing channel for refurbishment, development and conversion funding.
With a recent survey showing that this part of the market reportedly totalled £1.29 billion between April 2013 and April 2014, which is almost double the previous period, this is particularly noteworthy and demonstrates that far from reaching a plateau from which it will inevitably decline, the bridging market remains in rude health and the growing need for short term finance in the areas outlined will continue to power the industry to greater heights.
Contrary to accepted opinion that as soon as the banks return to the market, bridging lenders which have spring up since the credit crunch will suffer, it is clear that the banks show no particular interest in getting involved in short term funding. Given the lack of appetite for commercial lending, their aversion to risk, the preoccupation with interpreting regulatory guidelines and without the pre 2008 funding, I can’t see why they would want to get involved.
With evidence growing of likely base rate rises in the offing as the economy starts to move away from its reliance on a low base rate, bridging demand will be largely unaffected. While the cost of funds will have an impact on headline rates, the short term nature of the product means that unless there are huge hikes which will affect lending market appetite overall, the transactional basis of much of our business is unlikely to be affected. The bridging market is seen as a facilitator and the growth of the refurbishment part of the sector would suggest that in the absence of any other source of short term funding, the existing bridging lenders would be able to absorb rate rises without losing demand.
New players looking at or about to dip their toe in the water, will be coming into a marketplace, which is already very competitive and has already developed and established intermediary relationships for distribution. Is there room? There seems to be no reduction in the number of potential new lenders, but bringing something new to a market that has matured quickly will be a test. With rates competitively priced and product specification unlikely to move further down the route of increasing LTV’s, all we have left is an appetite for riskier lending. Given the regulator’s interest in our market, I don’t think we are going to see too many takers.