To say that 2023 has been a challenging year for brokers would be an understatement, and it’s been particularly hard work for those with property investor clients. Rising rates in the first half of the year hit Buy to Let affordability hard, with anything but low LTV cases being tricky to place.
At the same time, rates were changing rapidly in the first half of the year, with brokers often having to revisit cases on multiple occasions, both pre- and post-offer, to ensure they were securing the best rate for their clients. Many brokers have reported having to do four or five times as much work on every case than they may have done previously.
One sector, however, that has gone from strength to strength throughout the year is bridging. The Association of Short Term Lenders (ASTL), reported that bridging loan books hit a record level in the third quarter of the year, with applications and completions also showing strong growth during the period.
There are many reasons for the success of bridging in 2023. As a product, it provides finance to fund a period of transition, and the volatility throughout the year has most definitely felt like a period of transition, most notably from a low-rate environment to one that is generally being considered as the new normal. One way that bridging has helped to finance this particular transition is by providing a short-term, fixed-rate loan for investors whose mortgage deal has expired and are unwilling to lock into a long-term product. A bridging loan can buy investors time, rather than sitting on their lender’s SVR.
With higher rates increasing the cost of investing in property, this year we have seen much greater demand from investors for alternative types of investment that can deliver higher yields.
Property refurbishment and larger scale projects like MUFBs and HMOs all offer investors an option for increasing their returns, whilst property auctions have provided a means of acquiring assets more quickly in a flat market where transactions have dragged on, often taking much longer to complete than they have historically.
One way of helping to expedite a property transaction is having a comprehensive title insurance policy in place, as this enables a lender to focus on underwriting the fundamental elements of a bridging case and this supports a more efficient and effective application process. It also makes possible some transactions that would otherwise be impossible, where there are complicated legal issues surrounding the security.
This gives a lender greater certainty and it means that we can, in turn, provide greater certainty to brokers and their clients and, this year, at Castle Trust Bank, we have increased the maximum loan size available to use title insurance to £3m, as a firm signal that we are ready and willing to provide fast access to bridging finance on high value and often complex cases.
Looking forward, there are signs that 2024 may be less challenging than 2023. Nationwide has now reported three successive months of house price rises (contrary to many recent predictions), and Buy to Let affordability is improving as lenders structure products with high fees and lower rates to help investors meet the stress testing on a mortgage. This is leading to an increase in Buy to Let activity and research platform, Mortgage Broker Tools, has said it had its second busiest month ever in October for Buy to Let enquiries.
A healthy Buy to Let market is important for bridging exits and will help to deliver much needed private rental accommodation to the market. Affordability is key in bridging as well, of course, but is more often based on the value of the property, rather than a stress test, and attaining leverage has been a big consideration for investors, particularly when commencing a refurbishment or conversion project.
This time last year, at Castle Trust Bank, we pivoted to bridging and launched Light Refurb and Heavy Refurb Bridge products to include Net LTV calculations, meaning that fees and interest can be added to the loan above the maximum LTVs, as well as the flexibility to choose a term that best suits their needs, up to the maximum term of each product.
2023 may have been challenging, but strong and reliable lenders like Castle Trust Bank have adapted their propositions to help meet the changing needs of property investors throughout the year. Many of these needs will continue into next year and we anticipate the growing demand for alternative property investments to continue, alongside an appetite to maximise leverage and achieve greater certainty in property transactions. Brokers now have tools to help meet this demand, and make the most of the opportunities that will be available in 2024.