Reviewing the Current State of the UK Lending Market

By Paresh Raja, CEO, Market Financial Solutions 

For property investors looking to consolidate or expand their existing portfolio, the future outlook for UK real estate certainly looks a lot brighter than it did twelve months. Having endured almost three years of uncertainty stemming from Brexit, the property market today is performing remarkably well and investors continue to eyeball the potential long-term capital growth on offer.

Indeed, UK house prices for April 2019 showed the biggest jump for two years; according to Halifax, prices rose by 5% in the three months to April compared with the same period a year earlier. Meanwhile, recent data also shows that transaction volumes have recently increased – it is estimated that 64,000 sales were completed in April of this year, marking a 4% increase on last year’s figures.

Anecdotal evidence suggests that the market is growing, offering positive news for investors eyeing up property opportunities in the UK. But how have the country’s lenders fared in light of Brexit uncertainty, and are they positioned to stand up to the challenge of meeting the growing needs of borrowers and brokers?

Trends in the lending market

Since the beginning of 2019, there has been a rise in the number of specialist and traditional lenders withdrawing from the mortgage and bridging markets. The start of the New Year, for instance, saw two lenders – Secure Trust Bank and Fleet Mortgages– announcing that they would cease new lending, with fierce competition and the uncertain economic climate cited as key factors.

On top of this, between 2016 and 2018 alone, 4,214 new products were introduced into the residential mortgage market. This is represents an increase of 72% and is a clear indication of both the size of the market and the competition within it.

Meanwhile, Brexit-inspired uncertainty has clearly had an ongoing effect on confidence levels; mortgage approvals dropped to an 18-month low in the month following the 2016 EU referendum, with this trend continuing beyond the immediate post-referendum drop. In July 2018, the rate of mortgage approvals for new house purchases dropped by 4.3% on the year. While this has recovered, it nonetheless demonstrates how the market can react during periods of uncertainty.

With many traditional banks exercising more caution when it comes to lending, more and more borrowers are looking towards alternative finance providers that can offer more flexible application processes and a quicker deployment of funds. This is something we have seen here at Market Financial Solutions, with brokers introducing us to clients who are in need of fast capital to complete on a property transaction.

Looking beyond traditional banks

Securing funding in a timely manner is a top priority when it comes to securing a property. That’s why it’s crucial that borrowers are well-versed in the options available to them beyond the remit of mainstream mortgage lending.

The bridging market, for instance, has been growing in popularity for some time now, offering prospective buyers fast access to finance that allows them to capitalise on time sensitive property opportunities. In fact, more than £4 billion of bridging loans were written in 2018 by members of the Association of Short Term Lenders (ASTL), representing an increase of 14.8% when compared with 2017 figures.

This just goes to show that the alternative finance market is claiming an ever-increasing share of the lending market. This largely comes down to the fact that there are benefits that traditional banks simply cannot compete with. Most crucially, alternative finance players like bridging lenders do not follow the same rigid tick-box approach commonly employed by traditional lenders, and can continue to adapt to the changing needs of borrowers by providing flexible finance for a whole range of purposes.

Once Brexit takes place on 31^st October, we’ll have a bigger degree of certainty that will undoubtedly encourage more buyers and sellers to give up their “wait and see” approach and instead move forward with their property intentions. As such, we can expect to see a flurry of activity within the property market, andlenders must be ready to effectively meet demand for finance. In this respect, borrowers should look beyond mainstream lenders and consider alternative finance providers that can offer a more flexible and tailored approach.