Philosopher John Locke is credited as being the first to postulate the so-called law of supply and demand. He argued that the free-market economy should set interest rates because government regulation could have unintended consequences. He wrote that "The price of any commodity rises or falls, by the proportion of the number of buyers and sellers."

Nobel prizewinning economist Kenneth Arrow argued that markets are never ideal. He said that “you cannot get a full understanding of the behaviour of any part of the economy without understanding its reaction on other parts.”

The UK property market is a perfect example of how imperfect the market is. Demand clearly exists but the supply of housing does not rise to meet it. In addition, targets are set but never achieved. In part, this is reflected by ever-higher prices, but it is evident that emotion, confidence and a multitude of other factors are also at play.

Following the populist rule of “something must be done”, governments cannot resist interfering, but consequences are often different to what was intended. For example, an attempt to raise more money by increasing stamp duty on higher priced residences has not achieved the revenue expected.

Trading volume has fallen, and many homeowners have increasingly turned to extending their homes, rather than buying larger ones and releasing stock. In turn this has also led to increased prices of building materials as well as a shortage of trained builders. Trying to reduce house prices by changing tax rules for “consumer landlords” has simply resulted in an increased use of corporate wrappers, which will reduce tax revenue. 

In the midst of all this, the latest Housing White Paper from the government, well-meaning though it is, has landed with a resounding plop. It remains to be seen what will actually be done and what the consequences will be, because it raises more questions than it answers. However, there is insufficient space in this article to deal with all of its contents, so I’ll restrict myself to a few.

Although there are many sweeteners and incentive schemes for first-time buyers, I think that there is an implicit recognition that generation rent is not only here to stay, but will continue to grow in 2017 and beyond. Younger people (aged 25-34) are more likely to rent privately than to buy with a mortgage. In fact, figures show that in 2004-05, 24% of those aged 25-34 lived in the private rented sector. However, by 2014, this had increased to 46%. Over the same period, the proportion of 25-34 year olds buying with a mortgage decreased from 54% to 34%, highlighting how the majority of this group of borrowers rented, a continuation of a trend first identified back in 2012-13.

Recognising this trend, there will be more protection for tenants, both re-deposits, longer tenancies and against rogue landlords. (The Times noted that 28% of private homes let in England are “non-decent”). Hopefully this will mean an improvement in the quality of existing housing stock.

At long last, modular homes will become more common. The limiting factor will be the traditional reluctance of lenders to provide mortgage funding. There is a vague promise to provide downsizing incentives and this is something that needs to be accelerated in order to release under-utilised housing stock. This should encourage older people living in large homes to sell, but where is the stock of retirement places providing facilities for active individuals?

In conclusion, I couldn’t really put it better than Dr Frances Hollis (Emeritus reader in architecture, London Metropolitan University) who wrote the following in The Guardian: “A paradigm shift is needed to solve the housing crisis. Building a quarter of a million new homes a year is not a sustainable solution. This is a small island. Instead, why don’t we intensify the use of the existing building stock, half of which sits empty at any one time? Tax breaks could encourage the elderly to share large family homes with lodgers, simultaneously reducing loneliness and the need for care. And championing home-based work would result in fewer people going out to work, and therefore reduce the need for workspace. Excess light industrial and commercial space could then be converted into desperately needed housing.”

By Benson Hersch, CEO of the ASTL

 

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

 

 

 

Pivot has become one of the latest lenders to join the Association of Short Term Lenders (ASTL).

Pivot is a specialist lender providing both bridging and development facilities secured against residential and commercial properties on a first and second charge basis. It comes to the ASTL looking to provide a different perspective and voice to the industry.

Started as an offshoot to a property development business, Pivot has significant experience in understanding complex development and planning transactions.  This, combined with diverse funding arrangements, means that Pivot can offer a range of standard and innovative products designed to fulfil the differing needs of those seeking a short-term lending solution.

Benson Hersch, CEO of the ASTL, says “Pivot is a welcome addition to our membership, bringing with it a wealth of experience, especially with those investing in property.  Working in the non-regulated sector they are intent on ensuring standards are in keeping with the regulated market.”

Shahil Kotecha, Pivot CEO, added “Since Pivot was incorporated in 2012 we have developed strong relationships with a handful of brokers, but it is now time to show the rest of the market what we can offer.  Our aim is to provide our clients with finance to enable them to progress with their projects and we work alongside our brokers to help deliver innovative solutions to do this.

“Bridging and short term lending has earned its place in today’s market. We want to be part of an organisation that is constantly working to improve both behaviour and image in short term lending.  As a member of the ASTL we hope to hold Pivot up as an example of what good looks like, whilst putting ourselves in front of the people that matter.”

 

Press release 2nd March 2017

 

 

 

The post-Brexit economic good news continued in Q4 2016.   Industrial production rose by 1.1 per cent month-on-month in December, manufacturing was up by 2.1 per cent (an annual growth rate of 4.4 per cent).  Even the trade deficit narrowed in Q4 to £8.6bn, after a record high in Q3.   Clearly, the fall in the exchange rate of Sterling has helped exporters.

 

Good news too for the construction sector, recording a month-on-month growth of 1.8 per cent in December.  New house building rose 2.9 per cent. 

 

The bridging sector has also enjoyed record growth, with the latest figures released by the ASTL showing a total of £2.85bn of loans written in 2016, compared to £2.43bn in 2015, an increase of 17 per cent.   At this stage, although there are worries about the long-term effects of the PRA’s latest affordability requirements for BTL mortgages on bridging as well as the mainstream market, low interest rates and the growing number of lenders offering interest-only loans still make refinancing achievable for most borrowers.

 

But (and there’s always a “but”), what happens if the authorities decide to intervene in the market.   Already, there are mutterings that “something must be done” about spiralling rents.   In addition, interest rates must rise at some stage.  The choices are difficult and there are always unintended consequences of government actions.  

 

When interest rates do go up this will increase the value of Sterling, possibly stifling export growth and making imports less expensive.   On the other, this may dampen reckless consumer borrowing and help to control inflation.   It may also strengthen banks – the continuing saga of NatWest, for example, has been blamed by some on the lack of margin; but, if it does, will that mean that they will be more willing to lend?  I have my doubts.   Interest rates, however, are only one component of a complex mix of measures which are available.   Most of all, market sentiment is the main issue, and this is a function of how optimistic or pessimistic people feel.

 

The attempt to dampen property prices by adopting the European Mortgage Directive’s definition of “consumer landlord” and by changing SDLT rates and the tax treatment of interest costs, has led to greater use of SPVs and consequently a lower proportion of new loans are subject to FCA authorisation.   Yes, property prices have come down in certain sectors, particular in London, but these are mainly higher-value properties.   These have done little to increase the availability of affordable housing.  Possibly, if meaningful incentives are offered to downsizers, this may help, but again who knows what the consequences may be?

 

Benson Hersch CEO of the ASTL

 

A version of this article was published by Specialist Lending Solutions in February 2017

 

 

 

Demand for bridging loans soared in the last quarter of 2016.  Figures compiled by the ASTL from its bridging lender members defied expectations with the value of bridging loans written increasing 26% in the final quarter of the year compared to the quarter ending September 2016.

 

Looking at the year as a whole, the growth was more modest with the value of loans written 9.4% higher in 2016 than they were in 2015.  Lending in the year still fell shy of the elusive £3billion, finishing the year at £2.83billion, up from £2.59billion last year; although the overall loan book at the end of 2016 increased by 29.7% compared to the end of 2016 to reach £3.3billion.

 

The value of applications increased 27.5% quarter on quarter, compared to a fall of 5% the previous quarter and a fall of 14% quarter on quarter in Q4 2015.  The improvement in Q4 2016 translates in to a massive increase of 71% compared to Q4 2015.

 

The disparity between applications and completions became clear however, as while applications for the year increased 34% over 2015, the value of loans written increased by just 9.4%.  This not only indicates that not all applications reach completion, but also that brokers tend to submit applications several lenders at a time.

 

Benson Hersch, CEO of the ASTL, says, “After a dip in volumes almost across the board in Q3 last year following the referendum, the size of the increase both in the quarter and across the year has overshot even my most optimistic expectations. I do expect volumes to rise again in the first quarter of this year, however I expect the percentage increase to be lower compared to Q4, as this quarter’s figures very much contrast with the Brexit blues that affected people looking for bridging loans between July and September last year.

 

“While lending by ASTL members didn’t quite hit £3billion, there are a number of bridging loans that fall under the radar, made by lenders that many people do not know exist, as well as those lenders who are not members, so the actual size of the bridging market is far larger.”

 

ASTL Press Release February 2017

 

 

ASTL toughens up its Code of Conduct to eliminate back charging of interest 

The ASTL members have voted to toughen up its Code of Conduct to avoid the back-dating of higher rates of interest to the inception of a loan, should a client go into default.  This new amendment will help to further ensure that no member treats customers unfairly.   

Whilst this back-dating practice is known to happen in the bridging industry, this change ensures all ASTL members abide by high standards to ensure fairness for customers.   

The new clause states: 

C10.1     For the avoidance of doubt, where the Member has a provision that a higher or non-discounted rate be applied in the event of default, then such rate should only be applied from the date of the default or the date of notification to the client, if later and not back-dated to the initial date of advance of the loan.

 

The ASTL has a very strict Code of Conduct that all members sign up to as a condition of membership. This covers elements such as Treating Customers Fairly, where all members, regulated or otherwise, must abide by the spirit of the requirements of the FCA.  Amongst other things, it also covers the way any complaints should be handled and dictates the need for transparency in the way that fees are charged. 

Benson Hersch, CEO of the ASTL, says “The ASTL sets very high standards.  This is to provide brokers with the assurance that their clients will be benefit from high standards of ethics and transparency when dealing with an ASTL member.  

“This includes not issuing terms nor charging fees where the lender does not reasonably expect to provide finance; bringing to the customer’s attention all costs and fees to be charged and treating both customers and all other third parties at all times fairly and courteously. 

“The new clause in our Code of Conduct just helps to eliminate any thought of bad practice and raise our standards still higher.  Any lender found not abiding by these will risk being expelled from the Association.”  

Press release 24th January 2017

 

  1. Bridging loans take a dip in the third quarter, but rise across the year
  2. How are we to fund pensions; and what has this to do with mortgages?
  3. Why do some intermediaries ignore bridging finance?
  4. Using limited companies for buy-to-let