With Brexit looming at the end of this month, many of Britain’s property developers and landlords alike have been struggling to sell their properties throughout the UK. The uncertainty surrounding Brexit has been added complexity to tenancy and property contracts, and this has had a significant impact on the confidence of consumers and lenders.
One common issue has been the deed of variation which states that ground rent will “double” every few years—and this has tied down a number of homeowners from selling their properties. Some of the UK’s biggest mortgage lenders including Barclays and Nationwide have been put off by such clauses and have declined thousands of mortgage applications as a result.
This increase in declined applications has subsequently led to an influx of buyers pulling out of property deals, and more distressed properties with buyers not being able to buy and sellers not being able to sell.
With this state of distress Brexit has caused over the property market, more and more buyers and developers are turning to specialist finance for help. Specialist finance, otherwise known as challenger banks, refers to private lenders and institutions offering mortgages to those who have often initially been declined by the main high street banks or are looking for faster and flexible funding. These challenger banks often have more flexibility when it comes to rates and duration of the loans in addition to offering loans more personally tailored to the borrower’s unique situation and condition. Some examples of challenger banks include Precise Mortgages, Commercial Acceptances, and Masthaven to name a few of the many.
One type of finance offered in such specialist finance organizations as those listed above would be bridging finance, an industry that has exploded in recent years, with a market valuation of £1 billion in 2011 and £7 billion in 2017.
This type of funding helps those wanting to secure a property in a short space of time, whilst avoiding traditionally lengthy mortgages or complex property chains.
According to MT Finance, common reasons for bridging include: buying a property when they have not yet sold their initial property or trying to purchase a property at auction.
Mezzanine financing is another type of finance that can be offered and involves a hybrid of equity financing and debt. In other words, the financial lender will take a certain stake in the development of the property alongside charging rates. Other types of financial help out there are in such sectors as development finance. This type of finance was designed to help in the development of property refurbishments from an initial plot of land to turning existing houses into a set of flats.
As Brexit gets closer and closer, alterations to terms and clauses within Britain’s property sector will only increase, leading to more complications, more doubt from mainstream banks, and more use of specialist finance as the country learns to navigate this new, post-Brexit landscape.