A rise in specialist and non-bank finance is expected in the UK following the end of coronavirus, the market reports.
Mortgages lenders and banks have agreed to uphold any existing mortgage offers for a period of up to 3 months since coronavirus lockdown started in March 2020, but a tougher and more restrictive lending criteria is expected to follow.
For mortgage lenders, there are many concerns surrounding income and affordability of households, businesses and mortgage applicants, who may experience uncertainty in their income and employment in coming months. This will result in a smaller number of successful mortgage applications and force individuals and businesses to look elsewhere.
Businesses and individuals are expected to turn to alternative methods of bank finance, known as non-bank finance or specialist finance. This includes landlords looking to purchase homes or flats for buy-to-let, commercial property owners who are currently facing the unknown, homeowners looking to move home or investors looking to buy and develop properties.
Specialist finance includes products such as bridging loans, development finance and mezzanine finance -which are commonly used by borrowers looking to avoid property chains, lengthy mortgages and those completing under a short timeframe. Since 2011, the bridging industry alone has grown from £1 billion lent out, to £7 billion in 2019 and it has become a viable way to fund property developments.
Specialist finance companies are currently very limited in terms of funding projects, especially given the covid-19 restrictions that not only the limited demand, but also the ability to carry out surveys, construction work and property auctions.
However, there is expected to be a potential surge in interest and deal activity when the coronavirus lockdown ends, which should confidently be by Q4 of 2020, provided there is no second wave of infections.
Specialist finance can be available in the form of regulated or unregulated activity, but is always secured against some form of asset, usually a residential or commercial property. This source of funding is rarely able to provide 100% of funds, with bridging offering up to 70% LTV and mezzanine in the region of 80% to 90%.
In a business setting, bridging loans can be used as a way to bail out a failing company. Currently the Government of Indonesia is looking at a bridging loan of $500 million to bail out their national airline Garuda. Previously, the German Government had bailed out one of its national airlines Condor for a sum of $415 million.