Why bridging loans are becoming an increasingly popular form of finance
- Bridging Finance
It was described as the worst Budget build-up in history but when Philip Hammond took to the despatch box to make his statement he actually had one or two crowd pleasers in store. In a speech that was peppered, rather uncharacteristically with jokes, Mr Hammond announced big news for first-time buyers with the scrapping of Stamp Duty for almost 80% of those people trying to get on the property ladder.
The proposal, though widely welcomed, has been criticised by the Office for Budget Responsibility. The OBR rained on the chancellor’s parade somewhat by announcing the measures will lead to an increase in house prices as sellers who may have kept their pricing modest to attract more buyers will now take advantage of the fact Stamp Duty is abolished for first timers and hike their prices. Mr Hammond’s moment of glory was cut short, it seems.
For the specialist lending and commercial industry the most important point was that which focused on housebuilding. The chancellor revealed he would be pumping £44bn of capital funding into the housing market and plans to deliver 300,000 home a year.
The funding, said Hammond, will be made available in loans and guarantees.
If the government can deliver on these proposals they will certainly have a major impact on the housing market and could go some way to alleviating the current crisis. The massive lack of supply of suitable properties at present is at the heart of most of the problems impacting the sector – from extortionate house prices to shoddy new builds being thrown up by major developers in an attempt meet government targets.
The knock on effect of this lack of supply is causing another stumbling block for first time buyers – one which is markedly more of a problem than Stamp Duty and that is deposits. With properties in so much demand prices have become so high they are out of reach for many buyers. Saving on Stamp Duty is a welcome boost for buyers but we’re talking about a couple of thousand pounds in many instances. Meanwhile those same buyers have to somehow fork up tens of thousands as a deposit.
As Benson Hersch, CEO of the Association of Short Term Lenders (ASTL) noted recently, analysis undertaken by the ASTL shows that bridging loans are becoming an increasingly popular form of finance for people looking to purchase their own homes.
If the 300,000 target can be reached we should see some relief for these buyers. However, the word ‘if’ is the operative word here. Without wanting to sound too much like a harbinger of doom, this year is actually the first year that the government has managed to hit its target (of 200,000 homes a year) since the credit crunch. Furthermore, in her 2004 report on Housing Supply, economist Kate Barker concluded that at least 250,000 new homes were needed every year to meet demand. At no point in the last 13 years has that target been reached. Is Hammond simply pay lip service to the industry by increasing the target? We shall see.
One thing that particularly stood out to me was the chancellor’s comment on SME developers. Detailing his proposals for more house building he stated: “If we don’t do more to support the growth of the SME housebuilding sector. We will remain dependent on the major national house builders that dominate the industry.”
And it’s a valid point. At Finance 4 Business our clients are some of the most innovative entrepreneurial people around. Many are small scale developers and house builders who could play a huge role in solving the housing crisis if they were properly supported. Yet the bulk of support goes to the major players. This is certainly a proposal we will watch closely and I hope it is one that Mr Hammond actually delivers on.
Finally it’s important that the PRS sector is not neglected as a result of this renewed commitment to homeownership (something which the government seemed to be backtracking on earlier in the year with the Housing White Paper heavily focused on build to rent.) A healthy rental sector is essential for many people and the mistaken belief that those who rent do so purely because they can’t afford to buy must be corrected. Renting offers flexibility and a lifestyle that buying often does not afford. Landlords must be supported in offering good quality rental accommodation, not lambasted and criticised at every turn. Whilst it was certainly a relief that the sector was given something of a break in this Budget I, like many in the industry, can’t help but feel disappointed that there was no talk of reversing some of the drastic policies introduced in the last few years. I guess that was always wishful thinking.
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