‘Average bridging rates could reach one per cent next year’ – SLS In Focus

Panellists agreed that the base rate was one of the most significant economic headwinds for the bridging market over the next year or so.

Pritchard said that knowing where the rate was going to settle was crucial.

He said: “Could it be up to five per cent next year? Until we know that, it could be that the average bridging rate could be above one per cent this time next year. We don’t know but we all have good teams…who are constantly doing work on that to know where it will be.”

Smith agreed that the base rate was a crucial headwind, not only where it was going to go, but how long it would be there and what it would come back down to.

He noted that there was a lot of uncertainty, but the consensus amongst analysts was a peak of five to six per cent then coming down to two or three per cent within 12 to 18 months,

“We have got choppy waters ahead, but it is about open communication, education and having that dialogue with borrowers and brokers directly.”

‘Slowdown in property prices’

Pritchard said that the cost of living crisis would be the “cause of a slowdown in property prices and in budgets itself”.

He noted that the cost of living crisis may not have fully hit certain people yet as heating may not have been turned on and other winter costs may not have been realized but it was going to be a “real dent” for affordability.

From a bridging lender perspective, he said that it was crucial to ensure that the right ONS data was being used to ensure borrowers can afford the loan and the price of materials were costed up correctly.

Pritchard urged “responsibility and prudence” among lenders and said that good lenders will be thinking ahead and “reverse engineering a bridge” to think about the exit. However, he said that the “exit environment is changing”, so it is important that lenders look at contingent exits, stress tests, affordability and how that may be impacted by the cost of living crisis.

Lewis said that around 90 per cent of bridging was done as a retained interest facility, so payments would not necessarily go up in the same way that bills would, but he said the cost of living crisis would impact the ability of borrowers to sustain debt.

“You have to be mindful of that and look at your exit and the viability of your exit,” he noted.

Broker need to communicate

Smith concluded that communication was vital for brokers and urged brokers who had clients who may need extensions or further support to get in touch as soon as possible.

This was echoed by Pritchard, who also noted that brokers needed to “be prepared” and ensure their cases were packaged properly.

He explained: “Be prepared, if you have a case where it has not been packaged properly or you haven’t been able to get the answers from the customer…that can have a knock-on effect on the rate.

“If I have case that is in there for another 60 days and bouncing around in underwriting, it will probably have a different rate than the one they came in on potentially. But if you can speed that up yourself, know all the elements and we can communicate with you then you can complete on the transaction quicker with the rate that you wanted as well.”

Lewis said that the broker world was “feeling a lot of pain” at the moment in time, adding that they could “feel like they are up against it on their own”.

“I think what they need to do is communicate, have a conversation and look for alternative solutions as a whole.”

He said it was important for brokers to have “think outside the box moments” to make sure they were exploring all options, identifying opportunities and offering best solutions to their clients.

Lewis also noted: “The market can take its sweet time to do anything at the moment. A client, a solicitor or a valuer can procrastinate a lot when it comes to  transactional flow. You [the broker] want to get this done, you want to get it done quickly, so you can breathe at the other side.

“Make sure you are sharp on your ability to deliver that transaction. Don’t take too much on where you can’t then help that journey to completion.”

Watch the full video [11:10] hosted by Anna Sagar, assistant editor for Specialist Lending Solutions, featuring Gareth Lewis, commercial director at MT Finance, Steve Smith, sales director at Roma Finance and Glenhawk’s director of sales Jamie Pritchard.

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