Property & Commercial Finance

  • Round up of property funding news for August 2018

    The summer is typically a quiet time for property transactions and property funding news generally. Brexit never far from people’s minds with close attention being paid to interest rates and property transactions.

    Countrywide rescue agreed

    Countrywide has raised £140m from shareholders following approval for the purchase of new shares. The breakdown of how the money is to be spent is as follows:

    • £115m is to be used towards debt payments
    • £14m for general corporate purposes
    • £11m on fees and expenses

    Undoubtedly Countrywide have massive task ahead of them, but thanks to this cash injection they at least survive to fight on. Presumably in the hope that turnover will improve when the property market picks up again.

    Rightmove May fall out of FTSE 100

    A combination of slow sales and stronger competition from a variety of sources are taking their toll on some of the more well established property related businesses.

    Rightmove are the UK’s largest online estate agent and saw its share price drop over the summer. The quarterly adjustment of the FTSE 100 index takes place in the first week of September and may see Rightmove dumped out of the FTSE 100

    A hot summer but a cooling property market

    The July report from the Mortgage Advice Bureau showed next to no change in the average residential mortgage. Likewise for the loan to values or ages of buyers remain static.

    The National Association of Estate Agents report that the number of sales to first-time buyers rose to an eight month high in July. First time buyers are taking advantage of the slightly improved supply of available properties.

    As September moves us into autumn the supply of properties may improve further along with more people looking to complete purchases before Christmas, slightly denting the first time buyer advantage.

    Meanwhile the Bank of England reported a slight dip in the number of loans approved for purchases and remortgages in July.
    Nationwide’s monthly house price index shows that prices fell by 0.5% from July to August. Although this is the biggest monthly fall since 2012 Nationwide are still predicting that house prices will rise by something in the region of 1% over 2018.

    Talk of Brexit and a property crash

    A Reuters poll of 30 property experts has predicted that London house prices are going to continue to fall well inti 2019.
    This slight fall is likely to mature into a full blow “tumble” (if there is such a thing) in the event of a no-deal Brexit.
    Hometrack figures show that London price had fallen by 0.1% in the year to July 2018.

    Help to Buy future in question

    The Help to Buy scheme was established during the financial crisis to try to stimulate house purchases. The current scheme is due to end in 2021. Seems unlikely that the treasury would pass up the opportunity to shave a little off the overall commitment. The Sunday Telegraph reports that the scheme will be replaced by one focused more on lower paid borrowers. Government figures show that 6,717 purchases (about 4% of the total) were completed by people earning over £100,000 per year.

    Alternatively The Times has speculated that the scheme will continue, but in an altered form, possibly with a taper or income cap.
    The scheme has undergone various criteria changes since it started, but is generally thought to have a positive effect.

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  • Lending Criteria to be relaxed ?

    John Phillips is the financial services director at Kinleigh Folkard & Hayward and in a recent article for Mortgage Introducer he makes an interesting point about lending criteria.

    There are plenty of positive headlines in the news about the return of growth to the UK economy and even enough good house price data to spark talk of a bubble and imminent correction.

    At the front-line it is fair to say that we are seeing greater levels of confidence, with all measures pointing in the right direction.

    The missing piece however is any significant improvement in household real incomes.

    You can read the full article here
    Although he obviously does not give specifics or timescales John does make a valid point that with the current cap on incomes it is hard to see how the property market can continue its current revival without lending criteria changing a little.

    House Price Rises

    Meanwhile RICS has reported that over half of its members reported price rises during October, the highest level since June 2002, Read more:

    This adds to a wide range of predictions of price rises for the next twelve months, and the associated good & bad consequences. The government’s Help to Buy scheme is adding to the mix with pretty much all of the mainstream lenders now offering access.  For mortgage brokers the increased activity can only be good news, but is it a short-term benefit?

    Quite how the government will keep a lid on the property market remains to be seen. There is a natural (Conservative) tendency to trust that “market forces” will apply any necessary corrections.  However, with the level of regulatory and treasury intervention already taking place in the housing market there is no real “market force” to content with. It is all artificially contrived.

    Is lending criteria about to be changed

    And as if to prove the point, the Bank of England has pretty much confirmed that they do not see market control as their responsibility.  This comment was in response to the Royal Institution of Chartered Surveyors’ suggestion last month that the Bank should step in to control house price inflation by capping it at 5%. It would appear that the Bank of England are content to see house prices rise as mortgages become more widely available. The bank’s main tool to combat price inflation is to control interest rates, but with the current constraint on incomes any upwards hike in rates could be very problematic for existing borrowers.

    The banks acknowledge that there is a wider problem with the general population’s finances as a recent HSBC press release highlights a savings issue:

    800,000 more households on the brink than in 2012 34% of the UK population have savings of £250 or less. New research from HSBC has found that over a third of people in the UK – around 8.8 million households – only have £250 or less set aside as a financial safety net.

    Of course the 34% of households mentioned in the research may not be the same households that are applying for mortgages. Nevertheless it should be of concern that the general public appear to be walking into government underwritten home loans with very little by way of a safety net.

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  • EU Directive on Buy to Let Mortgages

    The EU Directive on Buy to Let Mortgages was quite big news last week.  A quick round up of the reaction to the news follows, but first a bit of background:

    What is the EU Directive on Buy to Let Mortgages

    EU Directive on Buy to Let Mortgages
    EU Directive on Buy to Let Mortgages was set to change the UK market

    The European Union has been considering a set of new rules governing the supply of consumer credit, and in particular mortgages.  As part of the consultation process the EU sent out proposals to all member states, which if adopted as-is would have seen major changes to how Buy to Let mortgages are regulated.

    In essence the proposals would have required lenders to assess affordability of each individual loan without taking into account the rental income from that property.  Clearly this got a lot of people quite excited.

    It is worth bearing in mind that these were only proposals, and as such were intended to spark discussion.  It is also worth pointing out that the UK property market is unlike the rest of the EU.  The concept of private individuals owning multiple properties and renting them out is nowhere as common in most of Europe as it is in the UK.  So not entirely surprising that they would have based as set of proposals around the typical european set up.

    The Reaction:

    So, here’s a quick round up of the some of reaction to the news.

    The NLA took some credit for the change:

     

    NLA saves buy to let mortgages from being outlawed by European Union directive

    The Mortgage Directive, officially known as the Credit Agreements Related to Residential Property Directive (CARRP) attempted to create a single regulatory framework which would govern all mortgages within the European Union. The EU lobbied hard for this directive so that EU citizens would understand the regularity regimes when purchasing properties in different member states.

    The NLA has worked extensively with several European Parliaments and through pan-European associations such as the International Union of Property Owners (UIPI) and other UK and EU trade bodies to secure a complete exemption for buy to let mortgages from the directive.

    The online magazine Introducer Today basically quoted NLA reaction:

    BTL narrowly survives “catastrophic” EU Directive 

    A new EU Directive that would have made buy-to-let mortgages illegal has been successfully averted down after industry lobbying.

    Mortgage Introducer also relied heavily on the NLA press release:

    NLA welcomes EU decision on buy-to-let – Buy-to-let – Mortgage Introducer UK

    The mortgage directive, officially known as the Credit Agreements Related to Residential Property Directive, attempted to create a single regulatory framework which would govern all mortgages within the European Union.

    The final text is now going through the trialogue process which involves all 27 heads of state and the European parliament who will analyse the new revised before voting on the new directive to sign it off.

    The story was also covered extensively in the mainstream press:

    UK landlords secure reprieve after early draft of EU mortgage rules threatened to ban buy-to-let completely

    Early drafts of new mortgage rules currently being approved by the European Union would have banned buy-to-let loans completely and were only reversed after lobbying by UK landlords.The National Landlords Association said the original draft of the EU mortgage directive, which aims to create a single regulatory framework to govern all mortgages within the EU, would have halted the current booming buy-to-let market.It says that in constructing the directive, the EU Commission didn’t take into account the nuances of unusual mortgage products such as buy-to-let that only exist in Britain and Ireland.

    To be fair to the EU, these were proposals intended to protect consumers.  Given the track record of the financial industry generally, and mortgage availability over the last decade or so, it does not seem unreasonable.  Contrary to some of the reporting, the proposals were not intended to “ban” buy to let lending.  No doubt that had the proposals gone unchanged it would have been a major problem for people operating under the current market setup, but this would have been an unintended consequence.  Not the intention.

    Surely this is how drafting proposals and inviting response is meant to work.  An example to governments about listening to feedback ?

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  • Help to Buy

    Affordable housing continues to generate plenty of discussion among property professionals, both in the context of the supply of funding, and as a stimulus for house building. The Help to Buy scheme has divided opinion.

    What Is Help To Buy?

    1. Equity Loan
    2. Mortgage Guarantee

    The Help To Buy Equity Loan

    Underwriting the mortgage is still done by the lender in accordance with their existing lending policy. Unfortunately even though overall risk exposure is lower, many people feel that lenders are not acting fairly when assessing that risk. The accusation goes along the lines that a first time buyer on the Help to Buy scheme is effectively asking a lender to advance 75% of the purchase price (or more accurately 75% of the perceived value). However the underwriting process is not reducing the risk loading to the same extent that a person not on the scheme, with a 25% deposit, might enjoy.

    In fairness that is probably not a completely balanced way of making a comparison, as the Help to Buy scheme is specifically aimed at helping first time buyers. Underwriters may perceive that a first time buyer on the Help to Buy scheme is a higher risk purely by virtue of being in need of the scheme’s help.

    Mortgage Guarantee under Help To Buy

    The government is investing £130 billion in the mortgage guarantee scheme which will be available to anyone buying a home (new build or old) from January 2014. There is a limit of £600,000 which is the same cap as the equity loan.

    It is hoped that the combination of both schemes will help “Generation Rent” access affordable mortgages with lower deposits.

    There is of course a danger that increased availability of mortgages, and therefore buyers will start to push up prices at the entry level. That will naturally translate further up the chain and the property market starts to gather some fluidity.

    Most discussion about Help To Buy focuses on the effect that the scheme will have on the property market. Clearly the are some competing vested interests at play here. It will be ironic if the Help To Buy scheme ends up pushing up house prices, thereby excluding the very people it was set up to help.

    There is more about the Help to Buy scheme on the Gov.uk portal.

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  • Bridging loans could beat £2 billion estimate

    There is some interesting news about bridging loans in the press at the moment.  In particular the West One Bridging Index is predicting that £2 Billion will have been lent in short term loans before the end of 2013.

    Duncan Kreeger, director at West One Loans commented:

    “Our £2 billion prediction for this year was labeled out of date when mortgage lending recovered slightly.  Now it looks like an underestimate.  That’s because of the different culture in the bridging industry – we’re not afraid of the projects that deserve real investment.

    The UK bridging industry is expect to provide borrowers with a targeted £2 billion in short-term secured finance by the end of 2013, according to the latest West One Bridging Index. In the second quarter, industry gross bridging lending was £492 million, or an annualised rate of £1.97 billion. In the twelve months to June, gross bridging lending was £1.76 billion. Annual lending has grown by 9 per cent since the first quarter, and […]

    So perhaps it’s appropriate to re-cap the Pros and cons of bridging loans

    The Ftadviser notes that while bridging loans may charge an interest rate of as low as 0.75 per cent per month, Rob Jupp, incoming chairman of the Association of Bridging Professionals, warns penalty interest if the loan is not repaid on time is typically 3 per cent.

    Alan Margolis, head of bridging at United Trust Bank, says

    most short-term loans are in essence similar, but where they will usually vary is with regard to interest rates, fees and charges.

    Prospective borrowers must make a realistic assessment of the cost and terms of any bridging facility and of the ability to settle it or refinance it within the agreed timescale… borrowers must still apply the same level of focus on the proposed terms as they would with other types of funding.

    Click here to view original web page at www.ftadviser.com

    A Quick search on the internet for bridging loan providers will produce a very long and enthusiastic list of lenders and brokers.  It is tempting to think that going direct to the lender is a cheaper option.  Although this is not always the case, if you need specialist lending a broker may be best placed to find the right deal for you.

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  • Are Interest Only Mortgages Making a Comeback?

    Many homeowners feel trapped on relatively expensive mortgages, the combination of the ongoing lack of availability of mortgages and stagnant house prices.  Lenders left the interest only market in droves following indications from regulators that increased regulation was likely.

    According to Moneyfacts the number of lenders offering interest only mortgages reduced to just 12, which is down from 81 two years ago.  Brokers are hoping that as the regulatory regime becomes clearer lenders will start to return to the market.

    Repayment plans and Interest Only Mortgages

    It certainly could be argued that the explosion of interest only mortgages 5 to 10 years ago was either a cause or symptom of the wider problem with credit availability.  It was all too easy for someone to self declare their income and then borrow 85% Loan to Value (LTV) with no plan to repay the mortgage.  Other than maybe selling the property before the term expired.  A fine plan, until the LTV gets bent out of shape.

    interest only mortgagesThe Financial Conduct Authority (FCA) conducted a review of the interest only mortgage market recently and found that 90% of borrowers had a “plan” to repay their loan.  There is no way of knowing from the survey whether the respondents plan is an effective one.

    Anyone looking for an Interest Only deal now must be in no doubt at all that they will need a credible plan to repay the loan.  Even high net worth individuals with a proven track record in property are being asked to provide reliable proof that they are in good shape.

    Providing proof of a repayment vehicle is not as straight forward as once it was either.  Forget relying on an inheritance or bonus.  Shares may be acceptable, but lenders are likely to adopt a very modest growth projection.  Seems that pensions are acceptable providing that a borrowers can show that they are able to take a suitable lump sum.

    Clearly Interest Only deals will remain outside the reach of most borrowers.

    Current Availability

    A quick check of http://www.money.co.uk shows 12 different lenders offering Interest Only mortgages (excluding buy to let) with LTV’s from 60% to 95%.  The mainstream lenders are still offering interest only deals, for example HSBC are currently offering a 2 year fixed deal at 1.68%, against a maximum LTV of 60%.  Or 4.39% fixed for 2 years against 90% LTV.  Virgin Money are also offering similar deals.

    Whilst interest rates remain low

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