CPD Article: How Bespoke Finance Helps Property Investors Adapt to a Changing Market

Learning Objectives

• Understand the role of bespoke finance in a volatile property market.
• Identify when and why bridging loans are used.
• Explore opportunities in property conversions and redevelopment.
• Recognise how specialist lending supports diverse investor profiles.
• Learn how global trends influence local property finance solutions.

If there’s one thing that can be relied upon in the economy and investment markets, it is its unpredictability. In the property market, there are endless forecasts, analyses, and commentaries on how the industry should move. Property prices will rise by X% in these months, demand will decline in Y part of the UK, etc.

But it’s been proven time and again that unforeseen events can throw the whole system out of whack. What may be more important than careful forward planning in the property world, is the ability to adapt when things go wrong.

This is why the bespoke lending market is so crucial for the property landscape. Our corner of the sector is designed to remain flexible when challenges emerge. We’re there to turn on a dime for (and with) our brokers and borrowers.

What’s more, there are many ways in which we can facilitate all this flexibility. The circumstances in which bespoke finance can help a property investor are manyfold, although there are a few key areas which are likely to be especially prevalent over the coming months and years.

Reacting quickly as owners sell up

As to be expected, when the outlook for property investment seems to deteriorate, many owners and landlords tend to sell up. This could be as a result of declining house prices[1], tightening legislation[2], or heightened taxes and other costs[3].

Whether selling up is the right thing to do in difficult economic climates will depend on individual circumstances. But, even in a challenging market the property market, and the BTL scene specifically, may hold plenty of potential for investors who are willing to push through the short-term issues. Even now, rents are set to rise[4], and substantial yields are available across the UK[5].

Still, landlords will sell up during tough times[6], and this creates opportunity for expanding buyers. Although, how long these opportunities will stick around for is unclear. Should the market rebound, investors are likely to flock back in and raise prices in the process.

This potentially leaves a lucky few with a short window of opportunity to expand their portfolios while houses are relatively cheap. Fortunately, with bespoke finance, taking advantage of these opportunities becomes achievable.

Generally, tailored bridging loans can be issued much more quickly than regulated, mainstream finance can. In fact, where everything lines up, a bridging loan can be issued in mere days, as opposed to weeks or months.

This need for speed could be especially astute in the auction market. Often, to offload their assets quickly, property owners will list their assets in an auction house in the hope of securing a fast sale. Usually, successful bids must be wrapped up within 28 days, and bespoke lenders will often have auction specific products designed to keep up with its rapid pace.

Shifting housing and commercial priorities

Sometimes, without warning, the wider landscape can dramatically shift what’s important or desirable in the property market. The Covid-19 pandemic offers the most obvious, recent example.

After its fallout, there was a long period in which demand for office space waned. Offices sat empty across the UK as workers were forced to stay home, and flexible working became the norm. As such, many observed that at least some of these empty offices could be converted into residential homes.

Also, conversions within the commercial sector could allow borrowers to take advantage of burgeoning industries. Manufacturing in the UK has stalled[7], yet demand for industrial and logistics hubs such as warehousing is on the rise[8]. Perhaps there could be scope for converting struggling manufacturing properties into productive industrial spaces?

While these would be substantial projects, the specialist lending market would be primed to support them. Permitted & light development bridging loans can accommodate a range of refurbishing, renovating, and/or conversion plans. There is also development exit finance available that can cover an initial development loan, and provide more time to finalise a project.

Think global – act local

We operate and invest on a global stage in the property market, and borrowers are prepared to look beyond where they’re based geographically. We’ve seen how financial or geopolitical shifts can draw in investors to the UK who are jaded by their own markets[9].

But, broadly, overseas investors and/or foreign buyers are likely to face more hurdles in investing in UK property with mainstream lenders, in comparison to domestic borrowers. Fortunately, they could turn to the specialist market for reprieve.

Bespoke lenders are generally more open to foreign national investors. They can assess their cases in the same manner as they do with UK-based investors.

Also, for all borrowers, negative headlines and economic downturns can negatively impact their access to finance. When the wider financial landscape suffers, it can lead to bankruptcies, missed payments, defaults and more. These can all raise red flags with high street banks, whereas specialist lenders tend to take them in stride.

Specialist lenders factor in the wider economic context with their cases. So long as the investment makes sense, and the exit strategy is solid, bespoke lenders will try to find a way forward.

New buyers and changing demographics

Some may have an idea of what a “typical” property investor looks like and a lot of the time, that image will be accurate. But dynamics can change, and there are new kinds of first-time buyers out there that need supporting.

For instance, there is a growing number of people in the 25-34 age cohort who are prioritising investing in BTL properties to build their wealth, as opposed to purchasing homes to live in themselves[10].

On the other end of the spectrum, there has been a noticeable rise in first-time buyer mortgage searches from the 56-65 age group[11]. Unfortunately, both young and old borrowers are likely to struggle with mainstream lenders. Young investors are unlikely to have built up enough financial clout for banks, while some lenders may worry that older borrowers might have less time to repay a loan.

Yet, these issues do not necessarily need to hold back borrowers with specialist lenders. Bridging loans, as well as bespoke BTL mortgages, tend to be available to young and old borrowers alike. They can also accommodate a broad range of investor types from individuals, through to SPVs.

These are just some examples of the many ways in which bespoke finance can prove vital in our shifting economic climate. The property market evolves in both good times and bad. The one thing that remains constant, is that the specialist market will adapt, and help investors find a way forward.