With the coronavirus pandemic causing global panic and an unforeseen impact upon the economies across the globe this blog will explore the specific impacts that this has had on the real estate lending market.
Lockdown 1.0
Prior to lockdown 1.0, it was almost a weekly occurrence that a new alternative, specialist or bridging finance lender would enter the ever-growing and vastly volatile market of property finance.
Since the credit crunch in 2008, traditional lenders have largely withdrawn from the fast-paced finance world of bridging. However, we are now seeing another aftermath to a slightly different crisis, in a market that is now expected to be worth an accumulative figure of £4 billion.
During the first lockdown in March, the announcements of the Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan scheme (BBL) were a fantastic step in the right direction to mitigate the short-term impact on businesses of all sizes. Specifically in the property market, we saw a huge volume of mortgage providers and big bank lenders withdraw from the market almost immediately, leaving some property investors with a need to find funding in the midst of a transaction with less than 24 hours’ notice. Bridging lenders and specialist finance lenders heroically stepped in to fill that void.
However, it has not been plain sailing for this burgeoning arm of the real estate market. We have seen dramatic decreases in Loan to Value percentages and an array of different approaches to rental income testing, leaving property investors with a gap to fill.
What have we learnt from Lockdown 1.0?
Over the last few weeks we have seen some lenders offering free valuations (!!) and some others even offering free legal advice – something which is unheard of and is especially remarkable in a market that usually requires borrowing parties to meet both their own legal fees and those for the relevant lender - whilst others are continuing to lend on pre COVID-19 property values.
Interest rates
Average Interest rates are starting to reduce back to the levels we were seeing pre COVID 19 and all signs are pointing in the right direction. Now is as good a time as ever for companies to innovate their processes and look forward to the digital age of property lending. With vital institutions and organisations like Companies House, Her Majesty’s Revenue and Customs (HMRC) and Her Majesty’s Land Registry now accepting electronic signatures, this will no doubt impact on turnaround times for lenders and borrowers once an application has been approved.
