Interview with Smartsearch’s Collette Allen

WHAT HAPPENS NEXT?

Looking to the rest of the year, Morrey outlined that uncertainty loomed large. However, he added that demand for property is still high, offering encouraging signs.

“The main factor cited for the strength of the property market is low interest rates and, despite the prospect that the base rate may be two per cent by the end of the year, mortgages are still quite cheap,” Morrey said. “So will higher rates cool off the market? Or will the cost-of-living generally cause people to put a move on hold? Or will general [falling] consumer confidence pull the plug on demand?”

Morrey predicted that things would carry on as they were during the first half of the year, and if prices do start to fall, then he believes vendors will simply not sell unless they have to. With supply reducing, prices tend to stabilise, and a crash is averted.

He also believes that specialist buy-to-let could do well if the property market stalls and investors spot opportunities - so lenders could be well placed to capitalise if they ensure their criteria is broad enough and rates are keen enough to attract the eye of diligent brokers.

“Finally, climate change and EPC ratings will be more and more prominent as the year draws to a close as various groups look to tackle the issue affecting us all,” he added.

Wilson, meanwhile, outlined that, at some point, there has to be some price compression, because lenders cannot lend at a loss indefinitely.

“Pricing will therefore rise in the second half of the year, irrespective of what the Bank of England does,” he said.

He believes the challenge will come when the first lender raises rates, with others following close behind. Just as no lender wants to be the first to raise rates for fears of being accused of profiteering, no-one wants to be the last to do so, be the cheapest in the market – and risk being inundated with business, which could negatively affect service levels.

According to Wilson, once bridging rates start to rise, there will be much stricter deadlines for cases that are in the system but have not progressed fully.

“There will be a pinch point – lenders will lend at a certain price until a pinch point or given date when it will be revised,” Wilson said. “Brokers will be under pressure to get deals across the line before the cost to the client increases.”

“Back in January, we published a report titled ‘7 Predictions in Development Finance for 2022,’” added Anderson. “In the report, we predicted that specialist lenders would play a key role in the transition to a greener economy this year, but also going forward.”

He went on to say that this is a trend Blend Network has already started to see within the specialist development finance industry.

“We have seen a significant rise in demand from property developers building ecohomes, energy-efficient housing schemes, and ESG-compliant residential projects,” Anderson added.

This trend is expected to accelerate, and Anderson anticipates the specialist development finance market to become greener in 2022, with specialist non-bank lenders playing a key role in the transition to a greener economy.

He added that another interesting trend his company has seen developing and expects to progress further over the course of the year is the flight to the safety of fixed interest rates on development finance facilities.

“The question on virtually every developer’s lips over the past few months has been, ‘What happens to my development finance costs if interest rates go up?’” he said.

For borrowers using variable rates with a direct link to Bank of England increases, the current rate hike cycle means that their pay rates or total cost of their debt has already increased in line with the higher base rates.

“Therefore, amid a fast-rising price environment and inflation hitting a 40-year high of nine per cent in April, as well as the surging price of construction materials, developers have been keen to avoid further sources of volatility by demanding fixed-rate facilities.” Anderson concluded by saying, “We believe this trend will continue in the second half of the year.” 