By Liam Cavanagh, Head of Bridging Finance at Ultimate Finance
Understanding the impact COVID-19 is having on the property market in general, and bridging loans specifically, is something we have been monitoring and adjusting to the changing situation over the past few weeks enabling us to continue to fund bridging loans during this healthcare crisis.
Whilst in previous downturns, early Government interventions have focused on trying to kick-start the property market through various liquidity schemes, their actions this time have pretty much frozen the property market which is having significant implications for the lending market.
What has happened so far?
- The Government has effectively told home buyers and sellers to delay transactions in line with social distancing measures
- Mortgage providers have been inundated with requests for payment holidays following Government guidelines that lenders must honour a three-month time frame
- Lenders have withdrawn products from the mortgage, development and bridging markets as they focus on managing existing customers and assess uncertainty over valuations
- Multiple process complications have arisen – inability to conduct on-site valuations, temporary closure of the Scottish Land Registry and filing challenges with the English Land Registry, and difficulties accessing removal services
- Projects involving renovation or refurbishment will be hit by delays with most construction sites closed
The combination of these factors will largely stop the purchase market for a period of time, particularly once the existing pipeline of mortgage lenders is worked through.
How are we responding?
As a specialist bridging lender, we must assess the state of the market as a whole in making our risk decisions and therefore transaction volumes and mortgage / development finance availability are key considerations. We recognise that the freeze in the property market will have a significant short-term impact on the ability for our existing clients to successfully exit their facilities, through a sale or refinance, in line with contractual repayment dates, and we are working with each of them on a case by case basis.
Whilst other lenders have temporarily withdrawn from the bridging market as they assess the impact on their existing portfolio, we are determined to retain our presence in the market and keep lending but in a prudent manner given the current climate. As such, for the time being we are focusing on residential transactions up to £2.5m with a small reduction in our maximum LTV at 65% and a minimum 12-month term combined with detailed analysis of the possible impact on successful completion of projects and exits. We will maintain the underwriting flexibility and speed that underpins our approach but recognise some of the process challenges will lengthen the timing of completions.
In this crisis, it has become more and more difficult for valuations to be undertaken in their usual manner. Our first choice will always be a full valuation inclusive of internal inspection. Clearly with social distancing guidelines, this is quite difficult to achieve, and most surveying panels are offering a more restricted service currently. However we can currently still operate at around 45% of our usual surveys, and do have the ability to perform internal inspections of properties where the property is a development/refurbishment project yet to be completed, unoccupied properties and even in some instances occupied properties where strict social distancing guidelines can be adhered to i.e. occupiers to leave the property, all doors left open and lights switched on.
We may also consider valuation options that harness the use of technology, with a drive-by valuation approach along with the borrower/occupier sharing internal images and a video of the property one such example. Each case will be judged on its own merit, as it allows us to be flexible in our approach.
We are continuing to write new deals based on this adjusted criteria and valuation approach, and as before, will be looking at other details such as security for the loan, experience of the borrower, exit plan for the property and any remaining works to be carried out.
Our technology infrastructure fully supports a remote-based workforce and allows us to conduct electronic identity verification to reduce process barriers that others will be facing. Our current pipeline of opportunities is strong, and we will continue to support our introducers and their clients in providing tailored capital at a time when funding sources will be more limited in the market.
Our CEO, Josh Levy, recently reviewed the residential property market in a bit more detail, and the impact of COVID-19 which you might find of interest too.