Building on the strength of a 14% YoY increase in bridging finance demand in 2022, the team at Beech Hill Capital are expecting a continued rise in demand for short-term finance as property owners and landlords face a confluence of economic factors in 2023.
According to Knight Frank and Savills, prime residential property in the UK is experiencing a slowing pace of sales, with the volume of purchase offers made in December 2022 16% below the five-year average. Coupled with this, FTSE 100 developers Taylor Wimpey, Persimmon and Barratt Developments all confirmed within their January updates their expectations of falling sales volumes in 2023. This slowing pace of sales for both prime residential and new developments has led to an increase in financing demand from owners and developers for extended sales periods, which traditional lenders are unable to service within the necessary timeframes.
Expected regulatory changes to EPC rating requirements are also beginning to influence property owners’ and landlords’ financing demands. From 1 April 2023, the minimum 'E' standard requirement will now apply to all "non-domestic private rented property", which means commercial and mixed-use landlords will need to ensure property compliance for all new and existing leases. Increased financing demand is expected from landlords whose properties will require refurbishment works to improve their EPC ratings.
Finally, according to the Resolution Foundation, as many as 1.8 million UK property owners on fixed-rate mortgages will have to refinance this year. With the BOE hiking the base rate in February to 4.00%, the highest in 14 years, many investment property owners, especially buy-to-let portfolio owners, are unable to achieve the desired leverage amount (predominantly based upon a ratio of net rent to interest rate) with institutional lenders. According to the EY 2022 Bridge Lenders Report, leverage amounts topped bridging clients’ list of requirements, with 28% of survey lender respondents planning to offer larger facilities over 2023.
Supply side for bridge finance is also expected to rise in 2023, with new institutional funders entering the market via smaller intermediaries. US financiers have entered the market in full force, seeking below-market-value UK transactions as prices fall and sales pace slows. Given the increasing demand for short-term finance products from both borrowers and investors, we at Beech Hill Capital are confident in the market prospects for 2023.