"The market is experiencing some erosion of product optionality in the face of ongoing reviews around pricing impact and the competitive outlook."
FR: Tell us about your background and your new role at Shawbrook.
I’ve amassed over 20 years of experience in the property industry, working in various roles that have been predominantly focused on leading front-line sales functions and guiding business strategy, so the opportunity to lead Shawbrook’s real estate arm was a hugely exciting one. The industry has faced some of its toughest challenges over the past 15 years, and it’s rising to them and developing solutions that have resulted in the most growth for me professionally, allowing me to stay very close to the ever-changing dynamic of the property finance space.
I’ve benefited from working with some great people both here at Shawbrook and across the market, and I’m looking forward to evolving Shawbrook’s real estate business to ensure we’re doing all we can to create opportunities for our customers with bespoke, tech-enabled funding solutions that support their business goals.
FR: What do you see as the biggest challenge for landlords and the buy-to-let market at the moment?
We’ve recently seen the increased strain on the cashflows of investors not locked into fixed rates. This has only been exacerbated by cost-of-living challenges and is perhaps felt most acutely in the more niche pockets such as the HMO space, where rental payments must absorb all associated services and costs. Landlords and investors will always look for opportunities to build and grow, however where historically they would look to leverage further on expiry of a fixed rate, for example, this will now prove more challenging due to the interest rate rises we now face. Whether this means that previously trusted and reliable strategies must change to focus more on yield rather than asset appreciation remains to be seen, but, for now at least, we are in somewhat uncharted territory.
From a lending perspective, the market is experiencing some erosion of product optionality in the face of ongoing reviews around pricing impact and the competitive outlook. Given the relative rate stability of the past 15 years, this should be no surprise and will stabilise in time. Lenders must do all they can to communicate with their broker and customer base with as much transparency as possible. This will help businesses and customers adapt to stay in front of the changing landscape.
FR: There’s been an increase in ‘green’ mortgage products in the market, can you tell us about Shawbrook’s Energy Efficiency Discount?
Over the year so far, we have continued to look at ways in which we can shape our proposition in response to key sustainability issues. In February, we published the first in a series of white papers focusing on the impact of proposed changes to regulations around Energy Performance Certificates (EPCs). Under the proposed changes, all newly rented properties will require an EPC rating of at least a C, which has material implications for the sector. Our research shows that 23% of landlords have properties rated D or below, 15% have no knowledge of the upcoming changes to EPC rules, and more than half are planning to pass at least some of the costs on to their tenants.
This has become especially important during the ongoing cost-of-living crisis. With the UK facing double-digit inflation and soaring energy bills, saving our customers money both immediately and in the long-term, as well as providing an incentive for property owners to make environmentally friendly changes, has been an important factor in the development of our new offerings.
This research proved to be the catalyst for development of the recently launched Energy Efficiency Discount, where new buy-to-let mortgage customers receive a discount or partial refund on their arrangement fee (plus the cost of the new certificate), according to the property’s EPC rating. This initiative represents an important step in Shawbrook’s ongoing commitment to the UK’s green property agenda and supports the need for research-based and practical support.
FR: Bridging loans are growing in popularity, what do brokers need to know about this market?
Bridging has come a long way in recent years and has become a specialist, innovative, and highly competitive market, which allows property owners to access funds quickly. This enables them to maximise the asset and make changes for investment, refurbishment, or change of use.
Professionals offering advice and support within this space need to have a good understanding of their customers’ strategies, making sure to stay with them throughout the full lifecycle and offer support in a timely, creative, and practical way to avoid any problems that could lead to delays and/or penalties. The market has innovative products, but still requires a specialist and often hands-on approach. Those looking at the market as a ‘quick win’ would do well to build experience first, or partner with a specialist to grow sensibly and sustainably.
FR: Where do you see the specialist lending market in twelve months?
The specialist market came into being when the opportunity arose to support under-served customers in the void left behind by mainstream lenders. It was seized and filled by more agile, specialist operators. The market flourished in a flat interest rate environment, but we are now moving into a period of escalating costs – something that, honestly, was always on the cards. Mortgage rates are rising - as are costs around swap rates and the securitisation markets are tightening, all of which is resulting in broadly reduced liquidity. This will clearly impact lenders in different ways. However, lenders will adapt and change according to the demands of the market. In spite of the recent uncertainty, we remain confident that lenders placing customer experience at the heart of their proposition and deploying creative supporting technology will be those that continue to grow within this market, and we look forward to working with our business partners to make this a reality over the next 12 months.
