Whilst the pending Brexit negotiations are drawing near, many landlords and property developers have faced difficulties with the purchasing and selling of their estates across the UK. The role of different clauses and terms have made legal agreements and contracts more complex and mainstream banks including Barclays and Nationwide are shying away from more and more mortgage deals.
One example is the deed of variation on lease agreements which states that ground rent will double every certain number of years. This exact clause has led to mainstream banks declining mortgage applications and creating a surge of deals that have buyers pulling out and deals that have not gone through.
There continue to be thousands of properties across the UK whereby sellers cannot sell and buyers cannot buy and they essentially become ‘distressed.’ In this scenario, traditional high street banks do not have the products or flexibility to assist.
With the Brexit negotiations having an impact on consumer confidence, more and more developers and buyers are shifting towards the fast growing market of specialist finance. This refers to non-bank lenders and private institutions that offer mortgages by first or second charge. Commonly known as challenger banks, they include the likes of Masthaven, Commercial Acceptances and Precise Mortgages.
As non-bank institutions, there is more flexibility in terms of rates and loan duration and a more unique offering is given to the individual, not the one-size-fits-all approach. There is essentially a product for every type of individual or business, with non-status lending also available for those with no credit score or adverse credit histories.
Examples of this include the growing sector of bridge finance, which has increased from a market value of £1 billion in 2011 to £7 billion lent out in 2018. This type of finances aims to bridge the gap between those looking to complete on a property within a short timeframe, perhaps because they want to avoid traditional property chains, have not sold their initial property or are competing at an auction house.
Elsewhere, there is development finance designed to assist with heavy and light refurbishments such as starting with an empty plot of land, the redevelopment of a building or turning a house into flats.
Mezzanine finance is associated with ventures of a higher risk, whereby the lender takes a stake in the property development or purchase as well as charging rates. Also known as senior debt, this type of product can offer loans-to-value of up to 90%