Recent broker survey has revealed a shift toward a certain type of lender
Blend Network’s most recent broker survey has shined a spotlight on the telling conditions brokers are expecting to face within the market over the next 12 months.
The survey, conducted on a quarterly basis, aims to identify key factors impacting the housing market by gathering the thoughts of finance intermediaries to assess where the market stands and attempts to predict where it might be heading.
Roxana Mohammadian-Molina, chief strategy officer at Blend Network, outlined that 94% of brokers surveyed said they expect credit conditions to be tighter over the next 12 months.
She explained that this shows concern has risen, as when brokers were asked the same question in July, 80% were expecting conditions to tighten over the following year.
Mohammadian-Molina believes that this sentiment is reflective of the current condition of the housing market, as she outlined that an estimated 40% of mortgages have been withdrawn as lenders struggle to price products amid financial uncertainty.
In line with these concerns, Mohammadian-Molina noted that brokers had expressed anxiety about the near-term outlook for the UK economy.
According to the survey, nearly 60% of brokers said they would describe the UK economic outlook going into Q4 as negative; this compares to 45% when asked in July.
Increased appetite for non-bank lenders
A theme which emerged was an increased appetite from brokers for non-bank lenders, which Mohammadian-Molina believes is due to the affordability issues mainstream lenders have faced.
She detailed that 53% of respondents in the survey said they were planning to increase the volume of loans they put through to non-bank lenders.
“When we asked the same question back in July, 40% said they planned to put through more business volume to non-bank lenders,” she added.
Within the survey, brokers were also asked what percentage of their total business they planned to put through a bank versus a non-bank lender over the next three months.
According to Mohammadian-Molina, 30% of respondents said they were planning to put through 76% to 100% of their total business to non-bank lenders in Q4.
“When asked the same question back in July, one in 10 brokers said they were planning to put through 76% to 100% of their total business to non-bank lenders over the coming three months,” she added.
What’s behind the choice
Mohammadian-Molina explained that the survey also sought to provide an understanding as to why brokers decided to use both types of lenders.
“Two in three brokers said they use non-bank lenders due to their greater understanding of development finance compared to banks,” she said. “The other two main reasons cited by brokers were non-bank lenders’ ability to provide higher loan-to-value/ loan-to-gross-development-value, and their greater agility in terms of response time.”
In addition, the survey intended to identify brokers’ greatest concerns in regard to risks to their businesses over the next three months.
“Nearly 60% of respondents said that stricter underwriting was the biggest risk to their business in Q4,” Mohammadian-Molina said. “Lenders tightening their credit conditions was also another top response provided by those brokers who participated in our survey.”
Mohammadian-Molina explained that the survey shed light on a trend she has been anecdotally hearing about in the development finance market for a while, which is the gradual shift to regulated non-bank lenders.
“With their nimble set up and flexible structures, non-bank lenders have proven to be able to provide real solutions when these are needed,” she said.
Mohammadian-Molina believes property developers need flexibility because, in property development, she said it is not a matter of if but when an issue arises - and when issues do arise, she added developers want to be working with a lender who is able to offer suitable solutions.
“It was quite revealing that 65% of brokers said that the main reason they would use a non-bank lender versus a bank lender is a greater understanding of development finance from the non-bank lenders,” she concluded.