Featured, Mortgage Guide
In the first of a regular feature, we have asked Matthew Yassin from Coreco Specialist Finance to provide us with his own, unique take on the wonderful world of Specialist, Bridging & Commercial Finance. I am sure you will enjoy his musings…
It was Friday evening after supper. I was just polishing off the St Auguir Blue from the cheese board about to settle in with a glass of Borolo and a familiar film. When I hear on the television “What do I know about Diamonds?”.
Suddenly I find myself thinking back to Monday morning at Coreco Towers scanning over the Bridging and Commercial market weekly supplement and I think to myself. What do I know about Diamonds?
Well I know they are hard to find. I know that everyone is looking for them. I also know that a Market full of Bridging loans, Mortgages, Development Finance and Commercial lending products can be full of them if you look “behind the sofa”.
For the obvious proverbial Diamonds, we cannot ignore the current purpose and scramble in the residential mortgage market. It’s a revolution in terms of the interest rates on offer. 99 basis points fixed for two years is a banks way of realising that if all else is lost, activity and custom for a reduced profit is important. Unrestricted mortgages starting at 1.4% with no tie-ins. Allowing non-committal investors to flirt with banks as if they were attending a mid-week speed dating event in one of the busy city bars. Then there are the weekly announcements on the cutting of 5 and 10-year fixes!
This, of course, creates a nervous tension in the general population. Some thinking through a cold eye review that somehow their own 2.5% interest rate is no good anymore. Leaving everyone all nervous and twitchy, feeling that no matter how good their deal is there is always one better.
The feeling is further enhanced by the banks teasing the current buy to let investor with such low-interest rates, but in a cruel twist severely restricting the yield assessment to which they are adjudged on.
The banks know within these heavily inflated property values comes a diamond of their own. The reduction of rental yields which seem lost and unable to keep pace with the ambitious property values on offer from estate agents.
The power in the buy to let market seems to have shifted from the heady days of 90% lending to anyone with or without a goldfish. The Banks are in control here now.
In other areas of the lending market, there has also been “shuffling in the queue” that has not gone unnoticed. Some “high Street” banks with appetite are testing the water offering the “safe” traditional Bridging options. They too seemed to have stumbled upon a diamond.
They have come bursting on the scene with historically low short-term Bridging rates from 4.99%, with comparatively low fees. Smiling and waving to all from the train as it leaves the platform knowing they have all the low-risk investors on board for a healthy profit. Leaving the “traditional” Bridging Banks’s behind on the platform staring at their expensive offering as if it were an invalid ticket for their journey.
Those new pioneers may be dressed up as Bridging providers, but make no mistake they are banks who have wondered into unfamiliar territory. Their offer, demanding the security of both the residential sale and purchase property. Traditional bridging.
The lenders left on the platform are of course not lost. Diamonds are found in many shapes and sizes and the next train will be arriving shortly.
As the market “moves the needle”, so do the specialist lending providers. They are no longer wanted in the “traditional world” having been expelled for their perceived cost. They too need to find their own diamonds.
For many, this consists of taking a “helicopter view” and becoming the senior debt providers for commercial, bridging and development lending. Confidently offering 10 – 15% for their pound. Interest fully rolled up to “protect cash flow and hit the ground running”.
These diamonds are disguised, though. Through inflated Gross Development values and high expectations from developers. Rendering cost irrelevant if those values are achieved.
Then there are, of course, those corners of the market where not many want to end up in, but find themselves there through their own ambitious crusades’ in search of the ultimate property deal with minimum exposure. It’s a cold place and the weather is not very nice here. There are eagles in the sky and only the seasoned investors generally survive.
Lenders here will offer their interest in the form of Mezzanine and Equity Finance. They will allow leverage of up to 90% – possibly more on occasion as long as there is “skin in the game” from the developer. This ensures that when “the horses are disturbed” it’s not just a case of downing tools given their financial exposure.
The deals on offer from Lenders represent “Hollywood pricing” if compared to the standard secured lending cost. To even say 2% per month or 50% of the potential equity profit would offend even the most light-hearted investor! The Lenders here have found the larger diamonds in the market.
However, these are not normal times and low interest rates everywhere have driven a gold rush. If there is room within the project appraisal for the developers to achieve their desired return then they may have found their Diamond too.
The presence of a 25% clear profit appears to be a powerful thing and suddenly the “Hollywood pricing” falls into to the “collateral damage” column of the appraisal after some “blue sky thinking”.
What do I know about Diamonds? Well, I know there are plenty out there, but I also know that I would use a good Broker to help me find one!
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