Bridging Finance grows in Northern Ireland
It goes without saying that the lending environment across the UK has been very challenging over the last few years but nowhere have the effects of the credit crunch been more felt than in Northern Ireland.
The combination of an ailing banking system and a collapsing property market saw many lenders get badly burnt and withdraw from the province.
Now, 5 years after the crisis began, we are beginning to see things change and particularly in the Bridging Loan market where new entrants have begun to realise the potential for profit in this market.
An examination of the situation shows just why; the Northern Irish property market has a number of overlooked positives:
- Property prices have fallen a long way, on average by about 50%* and by up to 70%** in some areas – realistically how much farther can they go?
- Many property deals for which Bridging finance is sought are Bank related and come at further reduced prices as banks unload their balance sheets
- Values are starting to be underpinned by rental yields. We’ve seen properties in Derry, for example, sell at yields of up to 30%
- Unlike the Republic of Ireland where Ghost Estates blight the land, due to the tighter planning legislation there remains a structural shortage of housing in Northern Ireland***
A year ago if we were asked for bridging finance in Northern Ireland we had to regretfully decline the enquiry, now we have four credible Lenders to whom we can turn for finance – the newest of which only arrived last month – so it appears that some in the market is beginning to realise the opportunity.
The terms offered by these lenders do, however, remain cautious. Two of the Lenders will only lend up to 50% LTV and while the other two do go to 70%, one of these will only look at deals in Belfast and the other will only do a max loan of £250,000.
Rates too are not as competitive as in England with 2% the normal monthly rate and one lender doing 1.85% if the LTV is particularly low. There are also additional fees as usual but these vary by Lender.
But what is clear is that there is renewed interest in this province and lenders have started to back this interest with loans.
Transaction volume for Bridging loans in Northern Ireland does remain low but at least there are now transactions so we foresee more growth from here.
Warren Buffet famously once said about investing: “Be fearful when others are greedy and greedy when others are fearful“ and it seems the four Lenders that we speak to have to some degree at least adopted this strategy when lending bridging finance to Northern Ireland.
With returns from lending in England & Wales decreasing as competition grows we expect more lenders to start being greedy in Northern Ireland.
Choice Loans is a finance broker with specialist links to Bridging finance companies in Northern Ireland.
* Source: University of Ulster House Price Index
** Source: Tom McClelland, RICS Northern Ireland spokesman as quoted in the Belfast Telegraph, 13 March 2012
*** Source: Northern Ireland Housing Executive Unmet Social Housing Needs Prospectus, May 2012