HMOs, chain-break bridging and adverse credit among key growth areas – Jannels

Speaking to Specialist Lending Solutions, Jannels said that the last 18 months had been a “massive opportunity” for the specialist sector, and more customers and brokers were doing business and getting credit there.

However, he said that education of brokers about the specialist sector would be vital as customers needs and demands become increasingly complex over the next few years. He added more needed to be done by trade bodies and larger lenders to promote awareness of the market’s nuances.

Jannels added: “We should be saying to clients, don’t give up. If your local broker is only dealing with high-street lenders, go find someone else who is specialist who can help you get a mortgage until someone categorically says no…keep looking. But don’t be afraid and put your head in the sand because if they’re paying SVR they’re paying over the odds.”

Jannels said that there was more business coming into the specialist finance market because of mortgage payment deferrals, which were introduced during the pandemic to help lift the financial strain on certain borrowers.

He cited an example where a client had come to them because their current lender had granted them a payment holiday only to be declined for a product transfer as the mortgage deferrals registered as missed payments in the credit scoring system. This will be a key area for specialist lenders as many didn’t credit score and “can do thing out of the ordinary” if they have a letter from the previous lender that the client took a payment holiday.

Jannels explained: “If they can’t stay with the current lender because they’ve had a payment holiday and it has registered as a missed payment they can go somewhere else, but brokers need to know where.”

First-time buyers and adverse credit

He said that around seven out of 10 of its enquiries were coming from first-time buyers with adverse credit, which is up from last year, and is a growing opportunity for lenders.

He said adverse credit loans were growing in attractiveness as they could go up to 95 per cent loan to value and adverse rates now started from 1.98 per cent.

Jannels said: “It is totally mad, but it is phenomenal because the offerings for our clients are what would have been a normal fixed rate three or four years ago.”

He added: “It’s great for clients right now because there are so many opportunities for them to get on the ladder to get their finances sorted. Even if they’ve had a blip here or there on the residential side, there’s plenty of opportunity. Lenders want to lend. They’ve got money right now.”

Bridging market growing but valuations are an issue

Jannels said that bridging had been “growing across the board” but two main areas that were increasing in popularity were refurbishment and chain break bridging loans.

He explained: “By the time someone comes to us they have probably been to the bank or building society which said no, and then to a broker who has not been able to help, so we are a third resort. We are three to four weeks in the process and we need to get valuations done as quickly as possible.”

However, he said that average time it took for a bridging loan to mature was 50 days and said that the “sticking points” often came down to valuations. He added that the firm was currently booking valuations for January.

In one example, a valuer who served a certain area had to self-isolate, and there was nobody to take over their workload.

He added that refurbishment bridging loans needed valuations for the property’s worth currently and what it would be worth in three months time, which took longer. There may also be smaller panel of valuers, which limited choice.

However, one major issue is the age of the average valuer is increasing and now stands at around 60, which could lead to long-term issues if the workforce is not replaced as people come up for retirement.

HMOs growing opportunity but EPC regulation growing concern

Jannels continued that buy-to-let is now a “huge part of any broker’s armoury”, and he expected there to be growth in demand in the next two to five years, especially for HMOs.

He said that it was seeing conversion of a three to four bedroom house in to a five or six bedroom HMO “all the time”.

Jannels explained: “The millennial group do not need to buy a buy-to-let house, they’re quite happy to rent a room for £500 per month rather than £1,200 or £1,300 per month on a normal buy-to-let.

“They’re saving money and they’re meeting other people, and literally every one of my landlords who have HMOs tell me they’re rented out before they’ve even finished converting it in the first place. So, right now it’s really buzzing and it’s an opportunity.”

He added that another reason for the growth in HMOs was because of low pension savings and property was viewed as a better investment, and HMOs had a better rental yield.

“Is a three-bedroom property that is going to bring them in £1,200 a month okay for them, or are they happy to spend £30,000 to £40,000 on converting property into five beds that’s going to bring them in £3,000 a month?” he asked.

He added that these improvements and renovations were “already happening”, especially when it came to landlords in between tenancies.

Regarding upcoming legislation that will mandate that buy-to let properties have to have an EPC rating of C or above he said that the biggest concern was cost, especially amongst portfolio landlords.

He added that portfolio landlords who have 50 to 60 properties could face a significant bill and work needed to be done to ensure that these changes could be made. This could be an area of opportunity for the bridging market, he added.

Jannels said: “We don’t really know the true picture as there’s still a lot of properties that have never had an EPC done on them. Until every single property in the country that’s rented out has got an EPC on it, we won’t really know.

“That’s still a long way away because a lot of people are on five-year fixed rates might to know for another two years.”

He added that Impact Specialist Finance was actively encouraging landlords to start making renovations and repairs to their properties now as it anticipated a lot of builder delays in the next few years.

“Everyone and their brother is going to be tied up and come 2024 they are going to be panicking as they need to get certain things done, and it’s going be a huge delay to meet those deadlines,” he said.

Jannels continued that holiday lets market was growing dramatically, and this was happening not just in traditional areas like Devon or Cornwall but around the UK.

He said the appeal was that people could rent them out on a week-by-week basis, and you could get guaranteed income for some properties for two years. It also has low lead value, and it was a good investment for pension savings.