The specialist lending market is wrestling with economic uncertainty but opportunities persist for lenders who are adaptable, TAB’s broker sentiment survey reveals.
Despite a slowdown in market conditions compared to six months ago, TAB says it remains optimistic about the sector’s resilience and potential.
The latest survey indicates that most respondents perceive the current specialist lending market as either “weaker or stagnant”, primarily due to high base rates and stress testing.
These factors limit borrowers’ ability to secure financing, making affordability a key concern, but borrower segments continue to expand, providing a positive aspect for the industry.
A shift in borrower demand is evident, according to TAB, with increased interest from international investors and first-time buyers.
Specific property types, including houses of multiple occupancies, holiday lets, and residential investments, are seeing heightened demand.
However, a growing number of borrowers struggling financially, suggests that economic pressures are fuelling the need for specialist solutions.
Loan approvals remain inconsistent, with the most common approval rate falling between 26% and 50%, followed closely by the 51% and 75% range.
Residential bridging loans, buy-to-let mortgages, and commercial mortgages dominate lending activity, while auction and development finance show notable traction, particularly in the North and Midlands.
Given the current climate, fixed-rate loans are the preferred choice among borrowers, with many seeking longer-term security where competitive rates are available. However, some borrowers favour shorter-term fixes due to market volatility.
Affordability stress testing, high base rates, and restrictive LTV ratios are key challenges limiting access to finance, with conservative property valuations further compounding the issue.
Interest rates remain the most significant concern among brokers. While some anticipate a base rate reduction of 0.25% to 1% in the near term, others foresee continued volatility or slight increases due to instability.
Additional risks include HMO saturation, overly cautious valuations, and potential government intervention in the form of tax or regulatory changes.
While some respondents expect the market to stabilise, others predict higher rates and increasingly stringent lending conditions.
TAB, led by chief executive Duncan Kreeger (pictured), suggests technology’s role in specialist lending is increasing, with brokers calling for enhanced tools to streamline processes.
Key advancements in demand include automated credit-scored terms, automated valuation models, improved lender platforms, centralised solicitor tracking systems and enhanced integration with affordability calculators and credit searches.
Despite current headwinds, TAB states that there are opportunities within the shifting landscape.
The rising interest from international and first-time investors suggests sustained demand for specialist lending solutions.
In addition, it believes technology adoption could be a game-changer, enabling lenders to improve efficiency and borrower accessibility.
TAB spoke to 27 brokers at end of January.
