More Lenders Turning to Bridging reports Hanover Square Brokers
Number of lenders purchasing refurbishment has doubled since start of the year
Britain's mortgage market is experiencing a drought, and has seen the proportions of bridging customers increase along with traditionally landlords, developers, as well as business owners. As of February, owners occupiers represented a 16% mark of bridging loan customers. According to the mortgage brokers polled by the West One Loans firm, that number has climbed to 18.2% in the last 11 months.
The lenders in the mainstream have seen the ability to lend stifled as they attempt to increase capital reserves. However, the Bank of England's Financial Policy Committee has since told banks that they must raise more capital in order to build safety buffers. Those buffers are meant to cover the risk of possible losses in loans to the borrowers who struggle in repayment. In turn, less money is available for lenders to hand out to borrowers.
“The problem is that the mainstream mortgage market isn’t doing its job properly. Five years into the credit crunch, residential lending is still a fraction of what it was during the boom as banks desperately shore up their capital reserves,” said Duncan Kreeger, chairman of West One Loans.
“Households can’t get the credit they need from the high street banks and as a result, more owner occupiers than ever are turning to bridging. And if banks are forced to redouble their efforts to raise capital, the squeeze on high street lenders will tighten further. While a bridging loan is a very different beast to a long term mortgage, in the right circumstances it can get things off the ground,” he explained.
The rising number of owner occupiers have turned to bridging lending for finance, and that reflects the number of loans being taken out to refurbish property. Eight percent of brokers listed purchased and refurbishment for the purpose of bridging. The number has almost doubled to 15% since then.
“There’s a huge housing shortage in Britain. There are many ways the government could solve the problem, from building on the Green Belt and liberalizing planning regulations to turning up the heat on the redevelopment of brownfield sites or increasing taxes on second homes. At present none of these things are happening and, as a result, there are too few homes to meet demand,” said Kreeger.
“That’s keeping prices artificially high and pushing more and more people and developers to borrow from bridging lenders to buy dilapidated, uninhabitable properties which mainstream lenders won’t offer a mortgage on,” he added.
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