THE SPECIALIST LENDING INDUSTRY IN 2023.

Tanya Elmaz, Director of Intermediary Sales for Commercial Finance at Together

Despite recent economic turbulence, many brokers are feeling optimistic this year. According to Together research; 82% are confident or somewhat confident about the market this year, and 63% are feeling very or extremely confident about their company’s outlook.

Our survey* revealed that 65% of brokers believe the biggest challenge will continue to be the impact of rising interest rates. This was followed closely by the cost of living crisis (60%) and customers not being able to get the finance they needed (37%).

However, they believe the opportunity will arise from more customers fitting into specialist lending criteria and needing to seek advice from specialised brokers and lenders, with 97% of brokers expecting to see a rise in customers who may need specialist lending.

As a nation we’re currently grappling with the cost of living crisis, rising interest rates, upcoming changes to EPC regulations (for landlords) – the list goes on. Whilst rates are gradually stabilising on the high street, many major lenders have tightened their criteria (preventing countless clients accessing the borrowing they need).

While overall transaction volumes may soften in 2023, the specialist market share is set to grow, as this sector has the ability for a more flexible, individual approach to reviewing applications.

This is consistent with predictions we made back in June 2022 following our research** into the residential mortgage market. We found that:

The UK residential mortgage market is set to grow 56% to £400bn in the next eight years.

Specialist residential mortgages are set to rise from £5bn to £16bn by 2030.

The proportion of specialist mortgages will treble in size with an estimated half a million mortgages dependent on the growth of the specialist mortgage provision.

The challenges facing the UK have exposed the ‘one-size-fits-all’ approach of mainstream lenders, with many credit-worthy, responsible clients struggling to access the finance they need.

This re-emphasises the hugely important role of the mortgage intermediary and means there are strong opportunities for them to grow their businesses and reach more clients than before.”

What’s on the horizon for bridging finance? 

The bridging market has always been – and will continue to be – very resilient as we see more requests for fast, short-term finance. This type of finance will be leaned on to provide certainty of funds for opportunities which may involve additional complexities. One such example of this is down valuations, where bridging can allow an applicant to offer another property as security by way of second charge to find extra funds.

Landlords and investors alike are still looking for ways to increase their yield. Properties in need of refurbishment continue to be a high priority, as do those which can be turned into a House in Multiple Occupation (HMO), a Multi-Unit Block (MUFB), or extended to add significant square footage.

We’ll also see investors using bridging finance to convert commercial and semi-commercial properties as more of these buildings become vacant due to businesses and building owners selling up.”

Bridging finance can also be advantageous for businesses who need a short-term solution to a cash flow problem, to consolidate good debt, or to seize growth opportunities. We’re definitely seeing an increase in these types of cases at the moment.”

*Broker research was conducted by Together Financial Services in January 2023 to 50 existing broker partners, to understand their expectations of the specialist lending market for 2023.

**Together’s Poll of 7,000 UK adults, conducted by Opinium in June 2022, shows 53% of respondents have one or more ‘non-standard’ criteria.