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BRIDGING FINANCE: MOMENTUM MUST BE MAINTAINED

By Kit Thompson

Since the UK’s recent decision to leave the EU, the stock markets have recovered, the pound has bounced back against the dollar (currently $1.31 at the time of writing), and unemployment remains at its lowest point since 2005 at 4.9%. In addition, FTSE 100 is at its highest level since August 2015 and FTSE 250 is just 1.5% off pre-Brexit levels.

A positive legacy
However, although the government has rightly identified housing as one of the greatest challenges facing the country, there is still a shortage, with 250,000 fewer homes being built annually than there is demand for, if the government is to meet its 2020 target for new homes.

Brexit clearly presents a challenge to the house building industry and this is just one of the reasons why bold leadership is required to ensure momentum is maintained in the short and long term. It is therefore promising to see that the new housing minister, who is assuming an important position at a particularly crucial time, realises that if the government is to achieve its targets, it needs to increase volume and speed up build out rates.

Sensible lending
In some instances, certain bridging lenders have cut back their maximum LTVs by 5-10%, with the highest LTV deals in the market being the first to be peeled back, although this comes as no surprise; it is just a sign of sensible lending. However, for the vast majority of lenders, it is still very much business as usual.

In the first assessment of the EU referendum, the Bank of England said that the majority of companies were not cutting back on investment or hiring. It also reported that there was “no clear evidence” of a slowdown in business activity of lending by banks to companies, suggesting that the sector is taking the Brexit vote in its stride.

In comparison, recent figures from Hometrack’s UK Cities House Price Index shows that London house price growth is set to slow post-Brexit. Despite this, we must remember that it is still early days and seasonal factors should also be considered. I also think it’s fair to say that top end properties in prime central London are the most likely to be affected, although there is no more than a 10% initial hit in prices, and will only really impact properties that are in the £3m plus market.

Consequently, some lenders are feeling nervous about these high value single assets, particularly in terms of their value and whether they will take a slight dip, as well as the issue of selling them within the 12 month period of a bridge. However, I am pleased to say that on the whole, the rest of the market seems to be unaffected. We haven’t seen an increase in down valuations and valuers haven’t been asked to go out and revisit valuations at all, pre or post-Brexit.

Swap rates
On another positive note, we must remember that the banks are well prepared in order to absorb any shocks to the market, compared to the 2008 credit crunch. In addition, as a result of the Brexit vote, swap rates have gone down even further. In fact, two, three, five and ten swap rates are at their lowest levels recorded. This has resulted in the cheapest fixed rates the market has even seen, including Coventry Building Society which has just released a ten year fixed rate at 2.39%. It is also worth noting the Bank’s recent decision to keep the base rate at 0.5%, which suggests that it didn’t believe the cut was required to bolster the economy, which emphasises the continuing resilience of the housing market.

Cup half full, not half empty
The long term effect of the UK deciding to leave the EU is of course unknown. However, with bridging lending exceeding £3.6bn and demand for development finance at its highest level since the pre-credit crunch, we must remain positive because history has proved that positive talk promotes positive activity. Of course the Brexit vote triggered many comments and warnings about the future state of the country, but as consumer champion Martin Lewis said, if we’re not careful, we could talk ourselves into a downturn.

The industry must therefore continue to work to ensure that confidence and stability are restored because financial storms are not inevitable. They are affected by the country’s mood and jitters and, as the American author Brad Cohen once said, “A positive outlook breeds success”.