Precise Mortgages

Brexit shouldn't stop innovation

November 2018 will no doubt go down as one of the most politically chaotic and extraordinary months in history.

Theresa May’s Brexit plan finally arrived, but whether the prime minister can hang on and see it through is, frankly, impossible to predict.

I won’t even try. Instead, I’ll focus closer to home. Amid the slew of resignations and revelations that have dominated the papers in the past weeks were the government’s official figures on housing supply in England. 

This data is released once a year and while the numbers relate to the year running from April 2017 to March 2018, in terms of gaining a good understanding of trends in the building and development markets, they’re useful. 

The figures for the year 2017/18 paint a mixed picture. Just over 222,000 new homes were delivered in 2017/18, up 2% on the previous year. It’s the highest number of new homes delivered in a decade. However, the rate of growth for residential construction has slowed from 15% in 2016/17 to 2% in 2017/18.  This suggests that delivery of the number of new homes set to be completed in the coming couple of years is going to slow.

That doesn’t come as a surprise. The government chose not to confirm that its Help to Buy equity loan scheme would be extended to 2023 until the October Budget announcement by Philip Hammond. Developers were largely confident that the scheme would continue slightly longer than planned, but that the extension would effectively be an orderly wind down. It has proven to be this, but the withdrawal of this support is likely to have some impact on developers’ immediate keenness to plough into ambitious expansion plans, particularly given Brexit and its effect on the housing market already. 

Indeed, we’ve already had updates from Bovis Homes  and Taylor Wimpey  this month, both acknowledging that Brexit has put a dampener on buyer interest. This will present challenges for the UK in years to come no doubt. However, it also highlights the vital role that smaller developers can play in the provision of new housing stock to the market. 

The Ministry of Housing, Communities and Local Government figures  show that of the total net new homes delivered last year, 195,290 new homes were built in the year to March 2018. But there were also 29,720 gains from change of use between non-domestic and residential properties and 4,550 conversions between houses and flats. Since 2015/16, new data has been collected on dwellings from change of use under permitted development rights. In 2017/18, the 29,720 additional homes resulting from change of use included 13,526 through permitted development rights. These additional dwellings comprised 11,555 office-to-residential, 743 agricultural-to-residential, 218 storage-to-residential, 110 light industrial use-to-residential, 861 any other-to-residential and 39 unspecified-to-residential.

Those in the short-term finance industry are well aware of the contribution permitted development has made to Britain’s housing supply. It is often exactly this sort of conversion work that is made possible by bridging finance, especially due to the more individual circumstances and smaller scale of development that is typical of this sort of project. 

Until now, funding this type of project has come down to developers usually applying for a bridge to fund the refurbishment work and then a buy-to-let mortgage separately, either from the same lender or another lender where the property is to be let. At Precise Mortgages, we were among the first to roll these two applications into one linked product – our bridge-to-let which allowed borrowers to apply for both loans at the outset, solving the question of the borrower’s exit from the bridge. This has worked well – so well that several of our competitors have gone on to launch similar offerings. 

However, we’ve never been one to rest on our laurels – and we make a point of listening to our intermediary partners when it comes to service, product and evolving client need. The changes in the buy-to-let tax regime over the past few years have driven a rise in the number of landlords seeking to improve yields by adding value to properties ahead of letting them. 

To answer this growing need, we’ve re-engineered our approach to bridge-to-let where it’s appropriate for the borrower. Instead of two separate applications – one for the bridge and another for the buy-to-let, we’ve rolled both into one under a refurb buy-to-let package loan. 

This deal is similar to the bridge-to-let, consisting of a bridge allowing landlords to borrow up to 75% LTV with rates starting from 0.49% a month and a buy-to-let available up to 80% LTV on the gross development value with rates starting from 2.99%.

The advantage of this is that there’s just one application and one underwrite – massively improving the service experience for both borrower and broker, but we recognise there are still two loans, so will still pay two procuration fees. 

There’s no denying that we’re in for a bumpy ride over the next 12 to 24 months as we navigate our way through the fallout from Brexit. But that doesn’t mean we shouldn’t keep innovating and seeking to make it as easy as possible for our customers to do business. Amid all this political uncertainty, that’s what we’re focused on.

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