A combination of the infamous mini budget, cost of living crisis and Bank of England base rate increases has led to the property finance market in the UK looking a challenging market for 2023. Tom Frank, Managing Director of Ice3 has some advice for anyone looking at their property finance strategy for 2023. Whether you are a buy to let investor, a house builder or a commercial investor there are things you can do to mitigate your exposure to the issues in the market.
“It has always been important to monitor your existing borrowings and analyse the correct new products for you when looking at new or renewed lending, but it is even more vital in the market conditions that lie ahead of us” commented Tom.
“We have compiled a list of suggestions for our clients, who range from private landlords to major portfolio investors and house builders. Some of these suggestions you can carry out yourself, others we can assist with. These tips include:
- Check your current deal– The simplest advice is to make sure you understand the terms of the deal you are currently on – be that a buy to let mortgage, a commercial mortgage, a bridging loan or development finance, it is important that you know what your obligations are, what the timescales are and what changes your lender is permitted to make. If you are unsure, we would be happy to look over your agreements for you.
- Considering New Borrowing – Again the simplest advice first here is to determine if now is the right time to be taking on new borrowing. Just because the market has become more difficult doesn’t mean there are not good investments out there or that you should not expand your portfolio or business. However equally it is sensible to ask the question is this definitely the right time or would assessing the market for a period of time allow you to make the right decision. Essentially we are saying don’t rush into commitments.
- New Development Finance – In much the same way as point 2, just because the market and the media are predicting a drop in house prices does not mean that you should not progress with new developments. The UK still has a significant short fall in housing and the indicators all suggest that the long-term real estate market in the UK will remain strong. The key here is to assess if now is the right time and then to ensure that your appraisal considers the complexities of the current market. It is vital that you stress test your appraisal to understand how elements such as a reduction in GDV (due to house prices falling), an increase in cost (due to the cost of living crisis) and an increase in interest costs (due to BoE increases) affect the viability and profitability of your site.
Most lenders will want to see you do this but more importantly it is important that you do it for you own risk analysis.
Again, we are more than happy to help you review your appraisal and the availability of finance.
- Bridging Finance
Exit strategy is key here – We have talked about this before and it is more important now than ever. Bridging finance can be very useful in acquiring properties that require work, or some form of active management to increase their value before you sell or refinance. However, in this market it is important that this exit strategy is considered carefully. How long will a sale or a refinance take? Do you need a longer term on the bridge to cover any delays? And what happens if you reach the end of your bridge? Some lenders apply significant extension fees, others penalty interest. What impact would these costs have on your profitability if you were to encounter issues?
There are a wealth of bridging lenders in the market all of whom offer slightly different products – before you take out bridging finance please speak to us and we can help you ensure you have chosen the right product and also that a bridging product is right for your needs.
- Income v Capital Growth for buy to let properties
For almost 10 years interest rates have been at an all-time low. This has allowed buy to let investors to purchase properties with finance costs normally well below their rental income allowing them to enjoy a. net surplus that has been used to acquire further properties, subsidise main income or in some cases be a main income. In the new higher interest rate world these strategies need to be looked at and revised. In many cases existing properties may no longer provide a surplus once fixed rates have expired. What is the strategy for replacing this lost income? In terms of new purchases do you need to revise your strategy to one of capital growth rather than income or do you need to increase the size of your deposit to ensure a net surplus.
These are all things we would happily talk through with you.
Essentially what we are saying is before you make a decisions on your property finance strategy for 2023 give us a call and we would be delighted to talk it through with you. Any first meeting is at our expense.
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