As at today, 8th April 2020 I am able to provide an overview of the lending market and solutions available specifically for Property Investors in light of the current coronavirus situation.
The corona virus has severely impacted the property lending markets with some lenders reducing LTV thresholds, increasing pricing or, in some cases, ceasing to accept new applications. This is because there are:
- Challenges with the valuation.
- Uncertainties with the long term value of the security.
- Uncertainties with the quality of the tenant / covenant.
However there is some good news in that some lenders have taken a much more positive approach to this situation and are trying to adapt and innovate so they can continue to process new applications. This includes a new adoption of desk based valuations or AVM’s (automated valuation model).
This can deal with the challenge of a physical inspection not being available but can also result in a lower valuation. Without a valuation the lender cannot make a decision so at least the use of a desk based service allows the lender to make an offer. Redwood Bank for example are offering to use desktop valuations and reduce the loan to value by 5% but committed to increase the loan by the 5% when restrictions are lifted and the property can have physical inspection valuation. This demonstrates how lenders can improvise and adapt if they want to.
In addition some lenders have now cut their interest rate following the Bank of England’s historic low rate setting at just 0.1%. There are lenders now offering deals with an appetite to lend at rates from 3%-4.1% on buy to let term products. A majority of lenders are now offering 65% Loan to Value or lower but there are still lenders such as Paragon Bank offering 75% LTV for landlords and investors. Other criteria apply such as minimum property value and loan size. Generally the specialised lenders for holiday let properties are not taking new applications.
Interestingly the lending market for short term solutions (bridging loan) is still buoyant and is even being used as a stop gap solution for investors that are seeing their current term applications stall and had planned to use the money, so can leverage a bridge for the funds and use a term loan as the exit when the borrower can find an appropriate lender for their term mortgage requirements.
Bridging funding remains an important tool in the kit bag for investors who will use the product to buy a property for refurbishment or capital raise on unencumbered properties to release a war chest of cash to take advantage of value for money property deals. Rates are being offered between 0.5% and 1.1% per month based on the loan to value and nature of the deal. There are additional costs in arrangement fees, legal fees, and valuation costs etc. Some bridging lenders offer no exit fees and others charge 1% on exit. The bridging loan market is highly specialised with a large number of lenders in the market. We can help you identify the most appropriate bridging lender for your situation.
The good news is that lending is still available for property purchase (residential, semi commercial and commercial), refurbishments, capital raise, portfolio refinance, and bridging. The reality is that there are fewer lenders, and those that continue to lend on good terms will be remembered for a long time after this virus crisis is a distant memory.