We’ve encountered a lot of challenges in the market over the past few years, with Covid, the disastrous mini Budget, global instability and more all having an adverse impact.
That said, there is a renewed sense of optimism in the residential property market.
Looking ahead to 2025, we certainly aren’t out of the woods yet; the market is still reacting to the Labour government’s Budget, from which the changes to stamp duty and wider taxing are certainly having an impact. While we may see a flurry of activity in the market as buyers and sellers rush to beat stamp duty threshold reductions, a number may also be sitting tight to see the direction of travel for interest rates.
Growing number of under-served borrowers
And while we don’t hold a crystal ball on interest rates, what we do know is that there will continue to be an increased demand for specialist lenders. In our recent Residential Market Report, we explored the changing needs and profile of borrowers, which clearly demonstrate a growing contingent of those under-served by the automated decision-making offered by high street lenders.
These people may be self-employed with a complex income, for example, buying in later life or seeking an unusual property deemed non-standard by some mortgage lenders. Numbers of applications from borrowers deemed ‘non-standard’ such as these are only growing, and the UK mainstream mortgage market hasn’t adapted to changing ways that people are now living their lives.
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Following the pandemic back in 2022, we found that 19% of non-standard mortgage applicants had been rejected in the past 1-5 years. Two years on from this, our research has shown that mortgage acceptance rates are still worryingly low for these applicants, 7% of whom are still struggling to secure a mortgage.
Two in five (39%) potential borrowers attempting to get on the housing ladder said their mortgage application had been rejected because they were buying through shared ownership. Nearly a third (29%) were denied due to having a thin or impaired credit history and 27% said this was due to them being over 55 or being divorced.
Specialist lending set to swell
So what does this tell us? Mainstream banks’ appetite to lend remains low as more people fall into the bracket of non-standard, creating a larger market for specialist lenders. In fact, our research showed that the specialist lending market could swell from £32bn to £54bn over 2023-29 – a significant 70% increase.
We expect to see a lot of activity in the bridging market in 2025. Landlords are looking to refurbish, and bridging offers them a great way to access short-time finance to cover the costs. This will certainly be top of the list if the government decides to bring back Energy Performance Certificate (EPC) targets, as landlords will need to look into ways in which they can update their properties to improve their rating.
Non-professional landlords may continue to exit the market. However, as more properties become available, there will be more opportunities for those willing to take them. In order to jump on a deal when it comes available, bridging loans can provide the fast and flexible finance needed to do this.
Bridging has always traditionally been seen as a specialist area and often a distress product, but it is certainly becoming more mainstream and viewed as a versatile vehicle to access agile finance. Customers are keen to learn more about the product and what it can offer them, therefore brokers must ensure they have a broad knowledge base in order to best serve those exploring it as an option.
Second charge popularity
Second charges, too, are an area we see becoming more popular; it is secured on the equity of a property based on the difference between the value and the amount owed on the first mortgage and means that homeowners effectively have two mortgages on their property.
The financial challenges that customers have faced over the past five years mean that a lot of people are looking for ways to consolidate debt, and a second charge is a good way to do this. For example, we have seen people who have undertaken renovation projects only to run out of the funds they need to complete. In this scenario, it can make better financial sense to secure a second charge loan to access the finance required to finish.
Some high street banks have begun to dip their toes into specialist products and, in particular, are exploring offering second charges. Brokers again need to be aware of this product and what it offers their customers to stay ahead of the game.
Prepare to cater for a range of borrowers in 2025
The main takeaway for the coming year is that you need to be able to cater to customers with different backgrounds and in different situations, and those that fall behind in their knowledge of specialist finance will likely lose business to those able to serve a wider variety of profiles.
It’s essential to stay up to date and educated on products and the wider market. At Together, we host numerous webinars and educational materials for our brokers – so taking the time to build your own knowledge will be a huge benefit for them and their customers.
