Knowing your stuff is more important than ever in a changing market

4th April 2022

On a recent trip to a mortgage exhibition (yes they are back!), I was struck by the number of bridging lenders now moving into the regulated markets or, at the very least, position themselves as a solution for otherwise conventional borrowers.

There are many reasons for this. The supply side is still hamstrung with post-pandemic issues and the demand side shows little sign of showing any let-up for the properties that deliver everything. Indeed, esurv’s latest house-price index illustrated how commuter belts in the South East have once again reclaimed their spot after a decade at the top of the price growth charts. It seems hybrid working has made many who thought ‘getting away from it all’ was a panacea to rethink. A ‘first world problem’ piece in the Times[1] the other day illustrates the point.

Inflation is eroding returns in equities and rekindled investment banks’ love affair with property – everyone conveniently forgetting that it is not quite as liquid as other investments. Nevertheless, you can barely open a trade press publication without reading about the multi-million-pound investments in bridging companies, new lenders, and new markets. There is lot of money out there looking for a home in bricks and mortar.

It’s a natural response to the likely growing cohort of borrowers for whom, as a result of inflation, the cost-of-living squeeze and higher mortgage rates, may find themselves no longer as welcome as they once were on the high street or through more vanilla lending.

This has natural ramifications for the housing market – competition among lenders, availability and cost of credit and the understanding of property risk. The credit cycle is turning. But this means understanding the security upon which you have a charge is even more important. And understanding how value is changing is a multi-faceted challenge. The demand-side of the economy may set the price but it is constantly being affected by supply-side directives. The impact of energy efficiency, the supply, the use of MMC (Modern Methods of Construction) to name three looming issues are key. There should be no assumption that any one of these factors joins up with the others.

It’s why understanding what information is available, complete, reliable, contemporary, and accurate is key to deriving a true sense of the value of the risk you hold. We have already seen some commentators declaring EPCs will impact value – but how this is done in a way not to disadvantage the poor has not been established. Equally we see in markets like Equity Release that MMCs regularly mean properties do not qualify for loans even though they are markedly better performers in terms of energy efficiency.

The law of unintended consequences has always loomed large in property policy making. Lenders need to get ahead of the game if they are not to become unwilling victims of ill-thought through policy developments. That means understanding markets, looking at the right data and developing their models to get to better answers more quickly. Fortunately, we can help.

[1] why-i-regret-my-pandemic-panic-property-purchase

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