Property investors unfazed by market volatility, turning to bridging loans over banks
Despite concerning reports on the state of the UK economy, more than 50% of property investors intend to make further purchases in 2023, according to a major recent survey.
Half of respondents still think that “now is a good time to invest in the property market,” the survey found, even though a third of the 1000-plus respondents are ‘strongly concerned’ about inflation, with many also worried about the cost of living, interest rates, borrowing costs and the state of the property market.
A quarter of property investors would struggle to remortgage or refinance if interest rates rise sharply, but the most common response (36%) was to cut back on discretionary spending, rather than sell up, or stop investing.
“We think that investors are taking a long view of the current chaos,” says Stephen Clark at bridging finance broker Finbri, which commissioned the survey and has seen strong demand for its services as banks have withdrawn mortgage products. “They can see that market fundamentals remain sound – there is excess demand over supply – and they are confident that conditions for investment will continue to be attractive in the longer term.”
Property investors are by necessity committed to medium-to-long-term financial horizons, since real estate is not a liquid asset. One very real advantage of the sector is that property is less vulnerable to short-term shocks, and has proved to be a solid investment over the long term for many generations.
Investors are however particularly sensitive to interest rate rises, since most of them borrow at least some of the funds to buy property. Finbri’s survey found that just under half of respondents would be ‘strongly concerned’ if rates rose above 4%. When asked where they expected the Bank of England base rate to be at the end of 2023, the most common response was ‘between 3% and 4%’.
Finbri noted an upsurge in demand for bridging finance set against bankers’ reluctance to lend as Clark explains: “More than 90% of mid-sized UK residential developers expect to source funding from specialist lenders such as Finbri in the coming years, thanks to the greater flexibility and speed they offer. Traditional lenders have scaled back their lending dramatically in recent weeks.
“By contrast, we have registered sustained demand, as customers look to extend their portfolios and complete investments that were already in progress. Investors often turn to bridging finance during downturns, or market volatility, in order to take advantage of new opportunities.”
The value of the UK bridging finance market rose by 22% in the year to September 2022, with customers citing investment property as the most common reason for borrowing. In the second quarter of the year alone, bridging finance increased to £178.4m from £156.8m in the previous quarter, a leap of 13.8%.
“These results show that while property investors are concerned about present day volatility, on the whole they believe that conditions will settle down and that the recent chaos will be short-lived,” says Clark.
People still need somewhere to live, families need to move to accommodate children or downsize, and the government hasn’t addressed the national housing shortfall.
“There is plenty of life left in the market,” concludes Clark.