The growth in specialist industriesInvestors and property developers have jumped at the opportunity to apply for specialist finance as a way to access funds within a short timeframe. This means they can skip the traditional property chains and delays associated with a mortgage application. Borrowers are willing to prioritise the speed of transactions with specialist finance despite interest rates being higher than a typical bank mortgage. However, this does also reflect the short-term nature of a bridging or development finance product which typically lasts 12 to 24 months compared to a 25-year mortgage.
|Bank Mortgage||1.49% (75% LTV)|
|Bank Mortgage||3.99% (90% LTV)|
|Standard Variable Rate||4.33%|
|Bridging Finance||5.28% to 24%|
|Development Finance||5.28% to 24%|
|Mezzanine Finance||12% to 20%|
Economic factors that are driving the changeThe momentous housing crash in 2007 has led to a significant decrease in lending from high street banks and so the criteria for approval for a loan or mortgage has become that much stricter. With the growth in technology and the Internet, there are lower barriers to entry for new entrants into the market with lenders and brokers offering better deals, faster checks, and funding. The role of unregulated specialist finance means that they can accommodate those with poorer credit histories – a large sector that would have been previously declined by their bank. Elsewhere, the increase in The Bank of England’s base rate from 0.5% to 0.75% announced in August 2018 will continue to fuel the demand for specialist finance. With mainstream mortgages being more expensive, households and property investors will continue to seek for brokers and alternatives who can offer more competitive rates.
Household changes and BrexitIn July 2018, the rate of mortgage approvals for new house purchases dropped by 4.3% on the year, with net mortgage lending at its lowest since February. Taking into account the recent interest rate rise, which has increased the debt of UK households on variable or tracker mortgages, the ability to source credit from high street banks is becoming increasingly challenging. The ongoing Brexit negotiations continue to create fluctuations in house prices and uncertainty. Again, this will continue to make the banks cautious with their lending criteria and give scope to more alternate funding options. Furthermore, the popularity of specialist finance is driving greater market competition. The UK economy has seen more lenders, brokers and more competitive rates emerge, and entering mainstream advertising too on TV and radio. With more pressure on the UK economy and its banks, it is no surprise that the specialist finance industry will continue to grow and thrive. Daniel Tannenbaum is Head of SEO and Co-founder at Tudor Lodge Consultants, a London based digital marketing consultancy.
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