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We can reasonably expect that we will continue to see volatile markets in the year's second half. But when there is market volatility, what does that mean if you need to buy property or access capital?
There's a general assumption that if we enter a bear market, a global recession is around the corner and that lenders will shut shop. In lending terms, the reality is different: various lending products tend to become more prevalent, and debt is used differently.
Finance is generally used to fund growth, capture opportunities and buy assets; for some borrowers, this won't change, whatever happens to the global economy. On the other side of the coin – particularly in times like now where there is volatility – borrowers will use debt to solve problems, save assets and tide them over until there is more economic stability and growth.
Here's what we expect to see regarding finance and debt trends in the second half of the year.
Remortgaging is already a huge trend in the market as borrowers look to fix rates for longer. Lenders have already made five and ten-year fixed rates more competitive than short-term fixed rates. In response, many borrowers buying property are opting for these rates out of the gate. Other individuals with existing mortgages are refinancing via these longer-term products.
Sellers must also be more realistic about their expectations regarding what buyers will pay for residential property. Buyers are pushing back against making offers that they - and lenders - feel aren’t realistic regarding a reasonable sale price. This also extends to properties that have been renovated or lightly redeveloped. Sellers need to understand the real value a new kitchen, bathroom or extension has added to their property, rather than optimistically relying on what they hope the value is, without any expert opinion. Getting valuations is imperative here, rather than picking a number and hoping for the best.
The trend for more space remains strong, but buyers are also thinking more ‘outside the box’ and opportunistically about how they will achieve this. Moving to larger properties was a big trend during the height of the pandemic, which has now changed somewhat as buyers look to stay in the same area. We’ve seen an uptake in buyers contacting us to broker a mortgage that would allow them to buy the flat above or below their current property and combine both on a single mortgage, for example. While not a straightforward scenario, this type of finance is possible, and several lenders will offer this.
Finally, there is still demand for buy-to-let properties, despite upcoming changes to the private rental sector. As regulations become stricter concerning the rules landlords need to follow, it’s also imperative to ensure that your property is fully compliant with these before seeking a mortgage or refinance. We have seen several mortgage transactions stall or not get off the ground because of relatively simple and easy-to-fix (but compulsory) regulations that landlords have overlooked or let lapse.
There continues to be huge demand for commercial finance, and we expect this will continue throughout H2. Despite the economic outlook, there are pockets of enormous potential and growth for certain businesses, and many want to raise finance. Enterprises of all sizes are using debt to secure the future planning of a company or to fuel growth. Broadly, debt is being used to bolster their positions or invest in staff, stock and so on.
Invoice discounting, unsecured business loans and VAT loans are where we see most enquiries, which will continue into H2. Many companies have substantial debtor positions they want to leverage to bring cash into the business. VAT loans are popular again - there was little demand for these during the pandemic, but now we’re back under the usual regulations. Many companies have very large VAT payments, and they can use VAT loans to spread these over three months rather than paying in one go. Finally, unsecured business loans are popular, given the advantages of this type of finance, which is predominantly used to bring cash into the business. They’re quick to arrange, and many companies are happy to pay a little bit more for these and benefit from the fact that these aren’t secured.
There is currently significant demand for securities-backed lending, which will continue well into the rest of the year, driven by the incredible demand for liquidity.
Borrowers often assume that economic volatility makes securities-backed lending more challenging to obtain, but this is rarely the whole story. Some types of lending do become more restricted - lenders can become quite discerning about which kinds of individuals they will lend to and the illiquid listed stocks they will lend against, for example. Undoubtedly, this type of securities-backed lending becomes more challenging for all but the very best-quality borrowers.
On the other hand, there is a strong lender appetite for lending against private and pre-IPO stock. Lenders typically like the fact that private stocks currently present less risk than illiquid, listed stocks. The valuations of private stocks have come down recently, which means lenders are more confident in lending against them. Borrowing in a time like now when shares have relatively low valuations can be better than when valuations are very high because it is less likely that borrowers will incur margin calls than when valuations are higher.
For Enness, ‘international’ means two things: UK-based individuals doing deals (buying houses, releasing equity, raising debt) against non-UK assets, and foreign nationals doing the same in the UK or in another country.
In the second half of the year, we predict momentous demand for liquidy. We think this will translate to cross-border deals increasing as borrowers look to their existing assets to release liquidity, pursue opportunities and solve problems. Debt with any international element (borrower, assets, investment into foreign projects and so on) remains challenging - especially for anyone seeking a large loan. In volatile markets, lenders become more selective in the loans they write, which usually acts as a barrier to international lending; as a result, we will see more requests for our services to facilitate and negotiate international finance.
In terms of property, by the end of Q2, we saw the return of foreign buyers wishing to purchase UK real estate. Many are looking to buy investment property or residences for family living or studying in the UK.
The secret with debt and finance is to get ahead wherever possible. Most people are usually reactive to debt – they find an opportunity or an asset they need to finance, or they wait until they have a problem they need to solve before they start looking at options. Usually, individuals will do this even if the plan, opportunity, or problem has been on the radar for a while.
Being proactive will always work in your favour, and we always suggest you think not only 'in the now' but try to anticipate what may happen in the future. In many cases, it can be more beneficial to seek finance before you really need it rather than wait until you absolutely have to have it and everything is on the line.
Wherever possible, think forward and explore possibilities. It's a cliché, but especially when markets are volatile, and lenders become more discerning, knowledge is power: knowing how much you can borrow, what assets you can borrow against, and what it will cost you is helpful. Knowing your options doesn't mean you have to act on anything. We regularly talk individuals and their advisers through financing scenarios or lending products that would work for them – you don't have to engage us to do this – just give us a call. You can then move forward knowing your options and return to us later, if necessary.
The debt you will be able to raise depends on your financial situation. You may find that by knowing your options, there are also things you can put in place today that will improve your case with lenders if or when you finally need to start raising debt. The stronger the position you can build yourself, the easier it is to raise finance, whatever happens in the market.
If you would like to understand more about raising debt, creating liquidity, or simply understanding what you would be able to borrow if you will need finance in the next 12-18 months, get in touch. We are happy to chat through your options and brainstorm possibilities, and there is never an obligation to take things forward – this is part of the service we provide as standard, and it is always free.