Building blocks

It is impossible to begin any article about the specialist lending market without mention of the recent FSA Mortgage Market Review. The news that the regulator is looking at scrapping self-certification is another nail driven into the coffin of specialist lending.

This announcement was swiftly followed by the news that Platform, one of the last two remaining self-cert lenders, has decided to exit this particular market. At the time of writing, this leaves Beacon Homeloans as the sole provider of self-cert mortgages.

However, Platform says that it remains committed to supporting the self-employed and that it will now work with the sector with a view to developing a new product that meets the FSA’s guidelines. Platform is not, and will not be, alone in this view and I can only echo the statement from David Tweedy, managing director, at Platform when he said: “We understand the FSA’s concerns on income verification and fully support its aims to improve transparency in the industry. However, we continue to believe that the industry must recognise that self-employed people can have different circumstances and may not always be able to provide the normal proof of income documentation required.”

Of course, this is still a relevant market which, in the most part, represents good risk if not abused. There has to be some compromise, but it is important that the regulator looks at controlling such markets rather than outlawing them.

In further digesting the Mortgage Market Review and its potential implications, one of the other main points highlighted was the regulation of the buy-to-let (BTL) market. A regulated BTL market could have a positive effect upon the industry. However, for this implementation to work properly, the rules will have to be clear and make sense. It is vital that the FSA shows sufficient understanding of the industry’s needs to ensure that this works to help rather than hinder the future of the market. It is also important to consider just how this may affect intermediaries and providers working in this sector.

Fortunately, many larger lenders already treat BTL as a regulated market, with systems and processing set up to comply with FSA principles. Intermediaries that operate across both the residential and specialist sectors generally treat their BTL cases in accordance with their regulatory status.

As such, the introduction of regulation will only really affect those unauthorised BTL specialists who have had no need to gain authorised status, and it is these firms that will experience the most upheaval should the sector fall into the watchdog’s regime. So maybe the bigger question is how many short-term lenders will remain?

There are currently 32 members of the Association of Short-Term Lenders and estimated to be over 2000 short-term lenders in the UK. The vast majority of these are small private companies and the lion’s share of these companies are writing unregulated business.

So just what will happen if BTL does get regulated? Well of those 2000 lenders, only 14 are FSA regulated, and of the rest, how many will be capable of achieving regulatory status or have the desire to even do so? I estimate very few and the resulting effect on the BTL market could be considerable.

The BTL market has suffered greatly over the past couple of years, but as with other specialist areas of the market, some confidence is returning. Figures recently compiled by the Royal Institution of Chartered Surveyors (RICS) for The Times showed a 2% increase in the number of surveyors that reported an increase rather than a fall in BTL demand in the three months to September.

However, investors are no longer interested in snapping up city-centre flats. RICS reported increased demand for houses from BTL landlords, with 5% more surveyors reporting an increase, while there was a sharp drop in demand for flats, with 15% of surveyors reporting a fall rather than a rise. These figures indicate a growing demand for BTL and with first-time buyers still struggling to get onto the property ladder combined with a continued lack of social housing this is a situation unlikely to go away.

Turning to another area of specialist lending that has suffered through tightening funding lines, the commercial market also shows welcomed signs of renewed activity. According to Investment Property Databank (IPD), commercial property values in the UK, which is Europe’s largest market for real-estate investment, have risen at their fastest pace in more than three years.

The value of offices, stores and warehouses climbed 1.1% in September from the previous month, according to an index produced by the London-based research company, which represents the largest monthly increase since June 2006.

Other new research seems to back up this new found positivity. A report from Savills suggests that increasing numbers of banks are willing to lend sums of more than £20m to commercial property investors. The report identified 23 banks in the £20m and over lending category.

Focusing on the short-term finance market, this is possibly the area that has been affected the least by the credit crunch and as such has remained relatively prominent throughout.

Through a combination of sound financial backing and sheer hard work many firms operating in the short-term finance arena have remained active in the intermediary market for the past couple of years. For Tiuta, this has been a result of a combination of consistent prudent underwriting and interaction with our intermediaries to enable us to continue in the right direction.

Diversification has been the key and following our increase in bridging LTVs and subsequent launch into secured loans we have also been able to offer facilities not only to potential purchasers of HMOs but critically to existing owners who have found themselves disenfranchised by the dearth of remortgage funding. This type of funding almost dried up completely, which is why we are delighted to be in a position to offer professional investors and brokers the opportunity to take advantage of the regeneration of this sector. The extension of the maximum loan size on our first charge residential bridging product to £10m has also helped to reaffirm our commitment to the intermediary market and help boost interest in short-term financial solutions.

When looking at the specialist lending arena, it is fair to say that any real prospect of recovery depends upon realistic access to funding, but this is currently not quite reaching the private lending sector in any real volume. The indicators showing improvements in the buy-to-let and commercial sectors are good news, but it is important not to get too carried away.

However, this rate of growth needs to be nurtured in a responsible manner and as an industry we need to illustrate that lessons have been learned.

Where possible, specialist lenders must continue to innovate responsibly and hopefully generate competition in certain areas.

After all, there are growing numbers of people out there that require assistance with non-standard mortgage and lending requirements. Let us hope that 2010 will see the FSA working in unison with the industry to ensure that these people have some form of access to fulfilling their requirements in a sensible specialist manner. 

Guy Garrard is head of business development at Tiuta