The UK’s property market and the lending landscape have undergone an exceptionally turbulent period.

Inflation has remained in double figures, while the Bank of England has embarked on a rate hiking cycle that has culminated in a rapid rise in interest and mortgage rates.

Consequently, during the fourth quarter of 2022, numerous lenders opted to temporarily halt or withdraw their products.

This cautious approach prompted homeowners and investors to put their purchasing plans on hold, resulting in a noticeable decline in house prices. Nevertheless, despite the ongoing economic challenges faced by the industry, there are indications that the property market is gradually stabilising: prices are starting to show signs of growth, while the level of activity suggests that the market may be on the rise.

As more buyers and borrowers resume their plans, the specialist finance sector is expected to experience a substantial surge in demand in the coming months and years, with the specialist mortgage market alone projected to reach a value of £16 billion by the end of the decade.

Already, as borrowers’ requirements continue to evolve and the demand for flexible financial products increases, homeowners and investors are turning to alternative sources of finance for their investments in the UK property market.

For instance, in the first quarter of 2023, recent data revealed a remarkable surge in bridging loan transactions, reaching record-breaking levels with a 68% increasecompared to the previous quarter.

This clearly demonstrates the strong demand for more flexible financial products that may not be readily available from traditional high street lenders.

With this in mind, the specialist lending market appears to be on an upward trend.

Flexibility and adaptability are key in the current market

Undoubtedly, the current economic environment poses significant challenges for borrowers.

Despite a recent decrease to 8.7%, inflation remains a concern, causing the value of borrowers’ money to erode in the prevailing climate.

Additionally, while the Bank of England has indicated that interest rates are approaching their peak, further rates are still likely.

As such, the rapid increase in borrowing costs since December 2021 continues to exert financial strain on borrowers, deterring some investors from proceeding with their investments in the UK property market.

Regrettably, the persisting economic headwinds hinder both investors and homeowners who aspire to capitalise on the ongoing opportunities within the UK property market, especially because borrowers are unlikely to discover the flexibility and optionality they require from traditional high street lending channels.

Certainly, the recent upheaval in the mortgage market has compelled many high street banks to tighten their lending criteria.

This, in turn, has led to the adoption of even more stringent tick-box methodologies for assessing loan applications.

As a result, homeowners and investors with intricate financial situations will encounter greater difficulty in accessing financial products from mainstream lenders in the current climate.

Therefore, in order to make investments in the property market more accessible, the specialist lending sector has a vital role to play in providing the flexibility and adaptability that borrowers need to invest with confidence.

Lenders who can provide flexibility and certainty should see demand grow

Naturally, lenders have had to adjust their rates in line with the Bank of England’s base rate.

However, even as they do so, there are numerous ways in which they can support borrowers during these uncertain economic times.

Offering certainty in an unpredictable climate is an excellent starting point.

For instance, borrowers experiencing cash flow challenges or concerns about meeting repayment obligations would greatly benefit from lenders who can provide fixed-rate repayment terms spread over an extended period.

By providing such solutions, lenders can alleviate some of the financial pressures faced by borrowers.

Delivering high-quality customer service is another way of supporting borrowers in the current climate.

Given the circumstances, investors will inevitably have numerous inquiries when engaging with lenders about their products.

As such, lenders who can effectively and transparently communicate how their products may be influenced by the economic situation will prove to be of the most value to their clients.

By addressing clients’ concerns and providing clear information, lenders can establish trust and foster strong relationships with borrowers, imbuing a much-needed sense of confidence in the market.

Elsewhere, by taking a more flexible and holistic approach to considering loans, lenders can support those borrowers with the most complex of applications, giving them access to financing and enabling a broader spectrum of homeowners and investors to participate in the UK property market.

This, in turn, is expected to bolster the demand for specialist finance products in the near-term future.

The ability to approach each client as a unique case is especially advantageous for lenders operating in the prime central London market.

With a significant proportion of foreign investors, borrowers tend to encounter challenges in securing the loans they require through traditional high street lenders.

Notably, the super-prime postcodes in London have witnessed a resurgence in activity, reaching levels comparable to the pre-Brexit era.

The demand from this subset of the market should expand in the future if lenders can meet their needs.

Likewise, the demand in the prime central London (PCL) market is significantly driven by high-net-worth individuals who frequently possess valuable assets such as real estate, fine art, or luxury vehicles.

These assets can be utilised as collateral for loans but are not often accepted by lenders with a rigid tick-box approach.

Therefore, specialist lenders are well-positioned to evaluate the unique circumstances of each borrower, enabling them to offer personalised lending solutions that align with the borrower’s overall financial situation.

Concluding thoughts

As the recovery of activity levels and the resumption of price growth in the property market continues, a growing number of homeowners and investors will be eager to engage with lenders about increasing their activities in the UK property market – but they’ll expect a high level of flexibility, certainty, and customer service.

As such, while the specialist lending sector appears to be on the rise, it is crucial not to become complacent and we must continue to explore innovative approaches to supporting our clients and meeting their ever-evolving needs in the current economic environment.

Source: Property Notify