Vic Jannels

CEO, ASTL

In a month of eye-catching headlines, from the government’s mini budget to the sad passing of HM Queen Elizabeth II, wouldbe borrowers could be forgiven for missing the news surrounding mortgage availability – but this is something few in the property finance industry are likely to have passed by without note.

Data from Twenty7Tec found that in August – a busy month for searches and the second-busiest ever for ESIS documents – product availability in the mainstream market dropped by 11.5 per cent. This makes for the lowest product availability since July 2021, and a far cry from the pre-pandemic high seen in February 2020.

September 2022 continued the trend, as the second-busiest month on record for total mortgage searches, but with the lowest number of products since the tech firm’s reporting began, now sitting at 32.6 per cent of the pre-pandemic high.

While there are nuances to this, with demand among first-time buyers dipping while remortgage searches ticked up, the picture is clear: The mortgage market is facing a difficult supply-versus-demand dynamic, all while rates rise, prompted by inflationary pressures and the Bank of England base rate.

Outside of the residential market, reports are also flooding in of buy-to-let (BTL) lenders pulling products in the face of economic uncertainty, preferring to wait until financial markets level out before launching new ones. Considering the ongoing news around expected baserate rises, among many other market factors, this does not look like it will happen any time soon.

It is not all doom and gloom, however. In fact, the bridging market remains stable, offering a full and competitive range of short-term finance options, which may become increasingly important as the mainstream market becomes difficult to navigate, and brokers find themselves having to problem-solve for borrowers.

Short-term mortgage lending is funded in a different way from the term market, which means that – while not immune to the ravages of ongoing uncertainty – lenders are not affected in the same way by current economic circumstances. This makes bridging an even stronger option for homebuyers facing broken property chains, in addition to its value as a fast, flexible solution.

To illustrate this, the ASTL’s figures for Q2 2022 show a strong market, with completions rising 17.4 per cent on the previous quarter, to just over £1.2bn, while applications rose 18.7 per cent to £7.5bn. This is the fifth consecutive quarter to see completions reach above the £1bn mark, while the size of loans books hit a new high of almost £6.1bn.

Even with economic instability making headlines every day, we expect our third-quarter figures to continue showing this picture of stability, and even growth, across the short-term lending sector.

Of course, while the market goes from strength to strength, there will always be nuances and moving parts to consider. Brokers need to have a strong understanding of how these will affect their clients, and need to work with lenders with in-depth expertise, to ensure borrowers go into the short-term market with their eyes wide open. In bridging, the exit route is key. So, while the market may not be affected by the same economic vagaries as term lending, there may be some knock-on effects.

The most notable example of this at the moment would be the drop in BTL products, as well as rising rates. Increased rates are going to take their toll on stress testing, which, together with tightening product availability, will add to an environment in which investors may struggle to find a viable BTL remortgage.

With this in mind, it is integral that brokers work with lenders to formulate multiple exit strategies, preparing for various scenarios, so that borrowers will not be faced with a shock when their short-term loan comes to a close.

For those using short-term finance to fund refurbishment work ahead of letting a property, there are also various other factors – ongoing supply-chain delays and rising costs spring to mind – which could delay projects, and call for flexibility all-’round.

There is always a chance that continued instability will start to take its toll. If there is anything the pandemic has taught us, it is to be careful when predicting the future.

There are also other factors – beyond rising mainstream rates and uncertain exit routes – that might make things complicated for short-term lenders in the coming months. For example, recent mortgage-market regulations apply to bridging, while not taking into account the differences between this and the long-term market, affecting re-bridging in particular.

Whether in our dialogue with the regulator, our campaign for education and awareness, or our continued efforts to maintain high standards among the lenders in this market, the ASTL will continue to work hard to keep this market strong in the face of whatever might come our way.

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