“The sun was shining on the sea, shining with all his might…..and this was odd, because it was the middle of the night” (to paraphrase Rev. Charles Dodgson).

PM Theresa May has officially served the Brexit divorce papers and we are now in the “phoney war” stage.   Despite posturing to the contrary, there is goodwill on both sides.   By and large, economic news has been positive, but is confidence justified?  The calling of the general election indicates that Theresa May wants us to demonstrate our confidence in her and her party more tangibly, obviously feeling that it will strengthen her hand in Europe when the negotiations get underway.

One might expect lenders to be nervous, but the opposite seems to be true.  In the latest sentiment survey of ASTL members, positivity continues to climb.  The proportion of those lenders who either expect the bridging market volume of business to remain the same or to increase has grown from a low of 48pc in June 2016 to 100pc in March this year.  

As far as their own businesses are concerned, the number of bridging lenders who expect their volume of business to grow over the next six months have grown from 31pc following the referendum last year to 85pc now. 

Is this confidence misplaced, especially since it was announced by Nationwide that house prices declined by a monthly 0.3pc in March, compared with a rise of 0.6pc in February? This was the first month-on-month dip since June 2015, when prices fell by 0.1pc.  This follows the report earlier this year by Halifax that the average price of a home fell by 0.9pc to £220,260 between December and January, however it does look like it has recovered a bit since then to remain almost identical compared to last year, up by 0.1pc.   

It is really too soon to tell, as statistics can be misleading, and at this time of flux, as the Halifax figures prove, what rises one month can drop the next and vice versa.  This is especially as the biggest weakness seems to be in high-priced property, which can drag down the national average.  Amongst ASTL members while 42pc expected a small amount of growth, more than 50pc are expecting property prices to stay the same while a couple of lenders even expected a drop in values.

There are other issues as well – in a recent article by Hugh Graham in The Sunday Times he highlighted the fact that in certain areas property sales are taking longer to complete.   For example, more than 25pc of properties in Liverpool, Wolverhampton and Bradford have been on the market for longer than six months.   This has led to an increase in chain blocking.   I can’t put it better than was put in the article “you’re not only relying on your buyer but possibly on your buyer’s, buyer’s, buyer’s, buyer – it takes only one case of the jitters to break the chain…and put everyone’s lives on hold.”

This is a classic opportunity for bridging lenders – chain unblocking is their meat and drink, which is perhaps why bridging lenders are currently feeling so positive.  A bridging loan gives a seller breathing space to sell their property as advantageously as possible and get the whole chain moving.   For someone desperate to move and not miss out on their dream home, this is the solution.   But (and there’s always a “but”) this requires knowledgeable brokers and skilled underwriters to ensure that the loan is both appropriate and advantageous.  It also requires solicitors that understand bridging and the urgency associated with many bridging loan applications.

The bridging market is becoming more and more competitive and 56pc of respondents to the ASTL survey expect this to increase, as an increasing number of new lenders enter the bridging loan space.   This affords customers both more choice and lower cost, but it’s up to intermediaries to select the right lender.

On balance, I remain positive, but, as ever, overconfidence is to be avoided at a time where uncertainty is the only thing that is certain.   Bridging performance in Q4 of 2016 was excellent.  Let’s see what the rest of 2017 and beyond will bring.

 

By Benson Hersch, CEO of the ASTL

A version of this article was published in the May 2017 edition of Mortgage Strategy