Specialist finance is the only way to reignite the property market

With a total value of £1,662 billion, it’s easy to see why the UK’s property sector is such an integral part of the nation’s economy.

Related topics:  Finance
Paresh Raja - Market Financial Solutions
14th August 2020
Paresh Raja 222

As such, it makes sense that the government’s efforts to help facilitate a post-COVID-19 economic recovery should so heavily focus on encouraging buyers and investors back to the real estate market, in a bid to once again stimulate economic activity in this vital sector.

The most prominent of these reforms has been the introduction of the stamp duty land tax (SDLT) holiday, that will cut the average SDLT bill by £4,500, and could save some buyers as much as £15,000. Until the 31st of March 2021, the first £500,000 of any and all property purchases made across the UK will be entirely exempt from this tax; with nine out of ten buyers qualifying for this tax break.

So far, the policy has been a demonstrable success. Property listing site Rightmove reported a huge 75% increase in buyer enquires in the two weeks following the tax holiday’s introduction, and the Halifax July house price index (HPI) revealed that this spike in activity had translated to the highest house prices ever recorded.

However, these positive indications will only truly translate into transaction numbers if buyers have adequate access to the finance products needed to complete on a sale. Without this, the SDLT holiday will only bring limited success, and the property sector will likely remain stagnated for the foreseeable future, delaying its recovery from COVID-19.

Releasing the full potential of the holiday

When the UK’s lockdown began back in March, mainstream lenders withdrew en-masse from the market amid unprecedented levels of uncertainty; freezing new applications and delaying the deployment of already-agreed-upon mortgages.

This limiting of products and services by mortgage providers was disastrous for those caught in the middle of a property transaction, as the risk of property chains collapsing suddenly become increasingly likely.

In response to this, brokers and borrowers turned to specialist finance providers; who stepped in to fill the gap in the market left by the exit of mainstream lenders. For those needing to close on a transaction during lockdown, the agility, speed and flexibility alternative financiers could provide proved invaluable in finalising sales. While transaction levels were down during lockdown, a significant number of transactions were completed due to the deployment of bridging loans.

Now, these traditional lenders are returning to the market as COVID-19 is in retreat. Fears are still present, though, that the continued level of uncertainty presented will only allow a slither of incoming loan applications to be approved, in a bid to minimise the risk exposure for banks. There are already reports of loan applicants being denied a mortgage due to their participation in the COVID-19 mortgage repayment holiday in March, despite assurances made at the time that it wouldn’t impact one’s credit score.

Similar to what we witnessed in the aftermath of the global financial crisis (GFC), during times of economic recovery the need for creative, innovative solutions is what stimulates investment and growth. After the GFC, the specialist finance industry was born to provide for this need, and I believe it will serve this function once again to reinvigorate the property sector after COVID-19.

So, buyers and property investors must be fully aware of all the financing options available to them, lest they miss out on the property of their dreams due to a fickle loan provider. Adequate research and a full understanding of the products and services available must be pursued by brokers and borrowers to properly partake in the opportunities available.

Failing this, the SDLT holiday will likely only bring limited success.

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