The Nationwide Building Society is among a growing number of lenders slashing its interest-only LTV for residential lending.  In March the mainstream lender reduced its maximum LTV for interest only loans from 75% to 50%.

Martyn Dyson, head of mortgages at Nationwide, says:

“A number of major lenders have recently restricted their criteria for interest-only mortgages and Nationwide needs to be able to manage application levels in a prudent and sustainable manner.

Many industry commentators are predicting that this is further evidence that Interest Only products will be withdrawn completely from mainstream lending.

Coventry Building Society Also Reduces Maximum Loan to Values

Quickly after the Nationwide announcement the Coventry Building Society followed suit by cutting its maximum LTV for interest-only lending from 75% to 50%.

The Coventry stated:

“Following moves by a number of other lenders to restrict their criteria for interest-only lending the Coventry has also reduced the maximum LTV to 50% where any aspect of the loan is interest-only.

And Then Skipton Building Society Followed Suit

Skipton BS then announced that from march 27th they would be cutting their max LTV on Interest Only mortgages to 60%.  They say that for applications up to 80% LTV, a maximum of 60% LTV can be taken on interest-only but the remaining 20% must be taken on capital and interest basis.

At the same time the Skipton also withdrew their 95% LTV products. Skipton states:

“Since the start of this year we have seen quite an uptake of applications for 95 per cent LTV loans, so as a result what we have set aside for them has been over subscribed and we have decided to pull out of them for the time being.”

Leeds Building Society Also Reduces Maximum LTV for Interest Only Loans

Leeds Building Society has cut its maximum loan-to-value for interest-only lending from 75% to 50%.  The building society cut its maximum LTV for interest-only loans where the repayment strategy is the sale of the property from 70% to 50%.

And Finally, Santander

Santander has cut its maximum loan-to-value for interest-only lending from 75 per cent to 50 per cent and tightened its interest-only criteria.  They will no longer accept the sale of a second property or cash savings as repayment vehicles.

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West One Loans Bridging Finance Index

Research from West One Loans, who claim to be the largest privately funded bridging lender in the UK, shows that demand for bridging finance surged to £911m.  Here are the mains points from their press release:

• Gross bridging lending in 2011 was 110% higher than in 2010
• The average loan size was 28% higher than last year
• The growth is being driven by Buy-to-Let lending
• The market has shifted away from commercial lending to residential.

Duncan Kreeger, Chairman of West One Loans, said:

“Buy-to-let is the horse pulling the cart, and it’s driving the bridging industry forward at a rate of knots. The first time buyer mortgage famine means a feast for property investors. Rents are high, property prices are deflated, and that has created a vibrant rental market that investors are piling into.”

“Despite banks increasing the number of buy-to-let mortgages, they have been unable to keep pace with the proliferation in demand. Buy-to-let lending is still very low by historic standards. In 2011 there were only 124,000 buy-to-let loans, compared to 346,000 in 2007. As a result more landlords are using bridging loans to finance the development of properties they can’t get mortgages on. Demand for bridging loans is sky high, and will continue to push towards the stratosphere in 2012.”

 

 Up To 90% L-T-V For Bridging Finance

Sounds incredible, but Federal Bridging Bank are introducing a bridging loan product offering up to 90% loan to value.  The product will be available nationwide and is being pitched as filling a gap in funding for property deals outside of the M25 and Manchester areas.

There are reports that £40m has been put aside for lending and that a team has been put together to manage the loan book.

The Bridging and Commercial website carried the story in late Feb as an exclusive but the news has now appeared on various other sites.

OFT to revoke the license of Bridging Loans Ltd

The Office of Fair Trading has decided to revoke the license of Glasgow based lender Bridging Loans Ltd. along with four associated companies.

Bridging Loans Ltd can continue trading until an appeal has been determined, however they have pointed out to the press that although regulated lending is not a major part of their business they are appealing.

In November 2010 the FSA fined the firm £42,000 for failures relating to lending practices.

And now for a quick round up of other Bridging Finance news

Bridging Rates Going Down?

Is a price war looming in the Bridging Finance Market? Various lenders are reporting cuts in rates, but are these just headline grabbing PR stunts?Lets start with three announcements of "cuts’ in bridging rates.

Storified by Chris Clarke · Thu, Mar 29 2012 03:15:04

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Property developer, Bovis Homes Group have shared some good news in their preliminary results for the year ending 31st December 2011. They report an operating profit of £36m for 2011, an increase of 69% on the previous year.

The background makes quite positive reading too. There were 2045 completed home sales, an increase of 8%. The average sale price was £180,100 which is up by 5% on 2010. Bovis has also increased its land bank as it now holds 18.749 plots with outline or potential planing consent against 17,325 in 2010.

David Ritchie, chief executive of Bovis Homes Group, says:

As well as driving profitability, the Group is focused on enhancing shareholder returns through improving the efficiency of its capital employed, through land bank management, including the sale of consented plots on selected sites, and by managing working capital tightly.

2012 is looking better too, private reservations have apparently increased and are reported to be ahead of expectations.

Taylor Wimpey

One of Britain’s largest volume new home builders have announced increased profits, and resumed dividend payments for the first time since the property crash.

Gross profits were up by 25% to £287m, boosted by the sale of written down land which achieved a better value than expected.

The average selling price for a Taylor Wimpey home was £185,000 which is just £1,000 up on the previous year. They were the first to point out that the increased profits were more to do with efficiency savings rather than a marked improvement in the general housing market.

Persimmon Returns 1.9bn To Investors

Persimmon has announced that it is returning the cash at the same time as reporting full-year results showing pre-tax profits fell to £147m from £154m in 2010. Revenue for the year was £1.54bn down slightly on the previous year’s £1.57bn

Persimmon reported that they completed 5,643 home sales in 2011, which was nearly 3% lower than the prior year. Although they said that the second half improved with sales 7.7% higher than the previous six months.

The average selling price was £167,580, down 2.8pc on the previous year, which Persimmon blamed on smaller houses making up a bigger share of its sales.

No related posts.

Read more about this subject here: Property Developers Report Increased Profits

There is a long standing debate within the residential mortgage market around the viability of interest only mortgages. The Financial Services Authority (FSA) have made no secret of their distrust of lenders who rely on interest only lending. However, some consider that this is a consumer driven product and it is quite likely that most lenders would prefer to restrict interest only loans to a select minority.

John Ward, writing for Mortgage Introducer, recently said

Interest-only lending has its place but is an undeniably higher risk product for lenders and one that should rightly remain as a niche rather than mainstream product.

The full article is on the mortgage introducer blog.

If you consider that interest only loans more-or-less started out of the growth in alternative redemption vehicles, such as endowments and pension backed products. They were initially tightly controlled so that a borrower could only take on an interest only mortgage if they could evidence a credible repayment vehicle. In the 1980’s and 1990’s it was not uncommon for lenders to periodically review mortgage accounts to ensure that endowments were on track.

From a commercial perspective, interest only loans do not appear make a great deal of sense. It is questionable whether a lender borrowing money on the wholesale markets and not seeing any capital being repaid until the term of the loan is sustainable. Clearly many of the lenders in this market were relying on securitisation to release capital.

So with the FSA expressing their misgivings about the commercial value of interest only mortgages it should come as no surprise that lenders like Accord and The Leeds are all tightening their criteria around interest only products. Perhaps they are using the FSA’s steerage as an excuse to distance themselves from a product they never really wanted to be involved with (in any volume). For example Santander stated that they will no longer pensions, the sale of a second property as repayment vehicles. This follows a cut in maximum loan-to-values to 50% (for interest only products).

Whilst it is rarely safe to compare residential and commercial mortgages, it is interesting to note that up until 2005 there were few commercial lenders prepared to lend money on an interest only basis. And when the squeeze came interest only commercial mortgages were the first to go.

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Read more about this subject here: Do Interest Only Mortgages Make Commercial Sense?

Applying for a commercial mortgage is fundamentally the same as applying for a residential one, some of the questions may be a little different, but the answers need to be broadly the same.

It will come down to questions about the security you are offering for the loan, your credit rating and how long you want to borrow the money for. Sure if you already know which lenders prefer your type of business, and you know what their lending ratios are you will probably have little trouble arranging your own commercial mortgage. Most other people will get a better deal if they use a commercial mortgage broker, and here`s why.

Why Using A Commercial Mortgage Broker Is Better

The commercial mortgage market is relatively small compared to the residential market, however it is much more complex. Lenders want to know that their money is safe, and they also want to understand your business. When a doctor or accountant applies for a personal loan the lender immediately knows quite a lot about that person`s income. Commercial lenders want the same depth of knowledge about a potential borrowers business.

This means that when applying for a commercial mortgage a lender will want details about your business credit rating, your balance sheet, the purpose of the loan, along with the location and value of the proposed property.

Applying for a commercial mortgage takes a lot of effort, there are form to fill in, accounts to collate and a 101 other considerations. You want to ensure that you have the best prospects of getting the right deal first time.

Here are a few things to consider:
1. Different lenders have different criteria for approving a commercial loan application.
2. A broker can represent you and submit your commercial mortgage application to the right lenders lenders. Maximising your chances of success.
3. A commercial broker doesn’t usually earn a fee until a loan is approved, which should mean they are prepared to work pretty hard for you.
4. Many brokers get paid by the commercial lender and not you.

It`s easy to get into a mind set of thinking that the first lender to say yes is the deal to go for. Commercial lenders are hungry for the right business so you may be able to negotiate a better deal by playing one off against the other. More importantly it is vital to fully understand the mortgage you are signing. Getting the wrong terms can prove very costly further down the line.

When you do things the right way they just seem to work. Using a commercial mortgage broker can make sure that you get the best result for the minimum work. A that not only gets you the commercial mortgage you need, but also the most appropriate one for your circumstances.

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It’s probably true to say that the majority of people using bridging finance are doing so for the first time, and probably won’t use it again.

That’s not to say there is anything wrong with the bridging finance industry, but it’s relevant because it means that customers and brokers are unlikely to be familiar with the types of deals available.

If nothing else, it is useful to understand that bridging finance lenders are unregulated, this does not mean that they are all sharks, in fact there are plenty of very professional operators in the sector.  But it is absolutely vital to understand that any private individual with a consumer credit license can lend money, and some of them are not very nice.

Look out for lenders and brokers that are members of an umbrella organisation, such as the National Association of Commercial Finance Brokers.   Also be prepared to use a commercial finance broker.  Mainstream financial advisers do not generally have access to all the specialist lenders and will most likely resort to referring your case to a panel.

Before starting your search be absolutely clear about what you want.  Don’t just tell your broker or lender that you want to borrow £75,000 over 4 months.  Tell them what the project is all about, why you are doing it and why you know you can repay the money.  The clearer your instruction the better deal you are likely to get.

Bridging Finance Deals

• Lancashire Mortgage corporation’s auction bridge -  This is an auction purchase product which is ideal properties under £150,000.  There are special arrangements for valuations
• Bridgebank Capital’s Renov8 product – Ideal for property development or refurbishment.  Better deals for people with a proven track record in property development.
•  Lowry Capital’s express refurbishment product – may lend on a property shell and won’t look at the current state of the property.  Again, ideal for property developers.
• Regentsmead – well established lender, and one that does not take a one-size fits all approach.
• Cheval – Been around for a long time and offers a wide range of products.  Can be a bit picky but a very good place to start.

This may sound odd.  But don’t focus on interest rates.  It is far cheaper in the long run to get the right deal first time.  Badly fitting bridging finance can be really expensive if things go wrong.

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