Why non-regulated bridging volumes may fall but regulated loans are about to soar
By Thomas Cantor, Head of Bridging Finance, West One Loans
Anyone interested in becoming a landlord – or anyone who is one already, for that matter – has probably asked themselves at some point if buy-to-let is still worth it.
Various Government interventions over the past decade have ultimately made life more difficult and, often, less profitable for landlords.
It’s worth reminding ourselves for a second what landlords have had to contend with over the past few years.
First, there were higher stamp duty rates in 2016, before the phased removal of mortgage interest tax relief starting the year after.
Then, last year, the Government introduced new legislation mandating landlords to ensure their properties reach an EPC rating of at least C by 2025 for new tenancies and 2028 for existing agreements.
Finally, in June, Michael Gove, the then Housing Minister, introduced new rules banning ‘no fault’ evictions and effectively taking the choice of who landlords let to out of their hands.
For the record, I believe strongly that we should upgrade the nation’s housing stock to battle climate change and also that tenants should have a fair deal.
But whether or not you or I agree with that legislation is irrelevant. The point I am making is that, taken together, those new laws undoubtedly make buy-to-let a less attractive proposition.
That has a knock-on effect for the bridging sector, and not one that any of us would particularly welcome.
You see, landlords have always been one of the main users of bridging finance in order to grow or refurbish their portfolios.
In fact, the latest Bridging Trends lending data shows that one in four bridging borrowers used their money to make an “investment purchase” in the second quarter. Or, in other words, to buy a property they intend to let out.
Moreover, the data shows that unregulated lending to landlords and other property investors accounted for more than 56% of total lending in Q2.
You don’t need me to point out, therefore, how important landlords are to our sector. But how long will that last if buy-to-let becomes a less attractive proposition?
And the bigger question for us is: what effect will that have on unregulated bridging volumes? Will they fall?
While that may seem like a dreary prospect, let me offer you something of a silver lining.
Even if unregulated volumes do suffer – and that is by no means certain – the UK’s ageing population means we are likely to see a significant uplift in demand for regulated bridging.
The Government predicts that the number of over-65s in the UK will grow by 5.1 million to 17.3 million by 2043, accounting for one in four of the population.
And as we all know, a lot of people decide to downsize when they reach retirement, either because they want a small, more manageable property or to move closer to family and friends.
In fact, research earlier this year by investment company Hargreaves Lansdown found that one in five Brits planned to downsize in retirement.
That throws up a huge opportunity for us in the bridging sector, as short-term loans are popular among downsizers who need to move fast in the UK’s ultra-competitive housing market.
Despite talk of a market slowdown, buyers have always faced stiff competition for their dream home in this country, quite simply because we don’t build enough homes.
Therefore, the need for regulated bridging finance will grow as more and more retirees chase a finite supply of suitable housing.
In effect, our target market will grow by millions over the coming decades, and so it is up to us to grasp that opportunity with both hands.
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