How HMOs could drive up demand for bridging

Bridging loans will become increasingly popular, as landlords convert residential properties to multiple occupancy accommodation to meet high tenant demand, it’s suggested.

Advisers will be needed ‘more than ever’ to help investors obtain short-term finance to realise these house in multiple occupation (HMO) ventures, according to Anna Lewis (pictured), commercial director at Castle Trust Bank.

Recent figures, compiled by auditors from data provided by members of the Association of Short Term Lenders, showed an increase in completions in the fourth quarter of 2023, rising by 18.4% on the third quarter of the year to reach £1.69 billion.

“Tenant demand is at a record high and the need for housing continues to greatly exceed supply,” Lewis told Mortgage Introducer.

“At the same time, the ongoing cost-of-living crisis has put a squeeze on everyone’s finances. I think this means we will see more landlords converting standard residential properties to HMOs to make use of available properties and provide a more affordable source of accommodation. This should mean that bridging loans are in even higher demand.”

Even so, Lewis anticipates some continuing apprehension among landlords.

“In the next 12 months, despite high levels of tenant demand, I think we will continue to still see some nervousness amongst landlords about interest rates,” she considered. “More investors are likely to look to higher yielding investments and we should see the continued growth in residential to HMO conversions. Brokers will be needed more than ever, to support investors with gaining access to short-term finance and helping them sort an exit.”

How is the buy-to-let market performing?

Lewis is encouraged by activity in the current buy-to-let sector.

“While the buy-to-let market has faced numerous challenges in 2023, there are signs of hope and resurgence on the horizon,” she suggested. “In recent weeks, there has been increased activity in the market, possibly because landlords are starting to feel more reassured as interest rates appear to have stabilised.

“I think Basel 3.1 (regulation to minimise the impact on the economy of banks that take on too much risk) is a silent challenge that, depending on the outcome, will force lenders to review products and propositions. This could impact investors in terms of rates and availability of products.”

What can the government do to support the private rented sector?

Politicians need to show greater recognition of the contribution landlords make to addressing the UK’s housing needs, Lewis believes.

“It would be refreshing to see proposed policy that acknowledges the important role private landlords play in meeting the housing needs of this country’s growing population and strips back some of the barriers that have been placed upon them in recent years,” she observed.

“The private rented sector provides accommodation for nearly a fifth of all households in the UK. As house prices continue to rise, working patterns become more fluid, and social housing stock supply continues to fail to meet demand, this sector has become ever more crucial as a means of meeting the housing needs of a growing population.”

Lewis began her career as a broker, advising on regulated mortgages, before going to work for InterBay Commercial, as a lending manager and latterly sales manager. She moved to Hampshire Trust Bank, where she set up the specialist mortgages division, and then Castle Trust Bank.

“We provide short-term and longer-term finance for investors,” she explained. “My role is to help develop and define the proposition, to provide brokers with a clear reason to choose to work with us on lending solutions for their property investor clients and to provide the best solution to meet their clients’ needs.

“Part of my role is to provide brokers with expertise about the specialist lending market and, at the same time, actively provide a voice for intermediaries within our business. I’ll also keep a close eye on the market to ensure we remain competitive and investigate new product ideas and process improvements, working with the team to ensure we always exceed expectations.”

What then, does Lewis consider a key business lesson from her career so far?

“The power of adaptability in a rapidly changing market,” she shared. “Being open to new ideas, creativity and making changes quickly.”

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