From the wider economy to specific sectors, managing director of Roma Finance, Scott Marshall, has plenty of reasons to feel bullish.
We’re nearly halfway through the year and, yet again, there’s never a dull moment.
2023 has had its fair share of ups and downs.
Wider economics are still challenging, the UK housing market is slow but steady, while the specialist property finance sector continues apace.
At Roma, our year to date has gone exactly as predicted and we’re growing as planned. New business levels are strong, and our redemptions are performing well.
This is all good news because, as long as our book continues to perform, we should see continued healthy support from both current and prospective funding lines, which is great, because we’re expecting to double in size over the next year.
There’s still a lot of uncertainty about where property values will be in 12 months’ time.
This uncertainty always brings opportunity. Specifically, it means that good, experienced people are able to buy better.
Vendors are beginning to be more realistic and it’s giving our customers a window of opportunity to buy property at better prices. This offers them more scope to increase the value of those properties to create wealth.
This market favours individuals who know how to buy well, because it means they can sell well.
We’re also seeing the supply-side issues on building materials sorting themselves out. A lot of those companies are being more realistic on pricing too. For example, we’re seeing some building materials, such as timber, fall in price.
Along with the pound strengthening against the dollar and cheaper shipping container prices, it means import costs are coming down, which is really positive news.
The wider economy
It feels to me like the supply-side inflationary pressures are largely beaten, even though this hasn’t filtered through into RPI and CPI quite yet. But this is largely because inflation is a rolling 12-month historical figure, so the data we’re seeing now is impacted by what happened up to a year ago.
In m previous blog from February, From volatility comes opportunity for property investors., I predicted that inflation would fall by quarter four, however, last week’s figures were disappointing and it is likely that inflation will take longer to fall than originally anticipated. This means there’s likely to be even better buying opportunities for savvy investors.
Look at what’s happened to petrol prices already and, during May, supermarket bosses said food prices had peaked and would start to come down.
We’ve avoided a technical recession up to now and there are clear reasons to be more positive.
The property market
Higher interest rates have resulted in lower affordability, and this year we have even more people coming off cheap fixed-rate mortgages.
They’re going to have real payment shock, moving from sub 2% rates onto 5%-plus rates. We can all see that’s an issue in the mainstream market with 1.4m fixed rate mortgages having already expired or expiring during 2023, peaking in the second quarter, according to the Office for National Statistics.
However, I do think we’re close to the peak with interest rates but because inflation is proving a stubborn opponent, we’re unlikely to see rates falling this year, although I expect the Bank of England Base Rate will eventually normalise around 4%.
And, despite a drop in residential property prices and sales figures, the fundamental issue remains – there aren’t enough properties available for those who want them. But there are still bargains to be had for developers who can do the improvement work needed.
At Roma, we’re pleased with our performance so far in 2023 and we’re currently busy right across the board, but especially in development finance.
The commercial property sector is still challenging and we’re seeing yields going up, which makes higher LTV commercial mortgages less obtainable.
We’ve seen a rise in demand for commercial to residential developments, on the back of lower commercial property values, the shortage of residential housing stock and an increasing number of firms opting for homeworking, which is creating vacant office space. This is most noticeable in town centres, which also helps local authorities in their drive to create 15-minute cities.
Focus on exit
We’re an underwriting-led business and are always focused on ensuring there’s a realistic exit plan, with contingencies built in.
The best borrowers we lend to are literally working on their exit from the day after the bridging loan completes and communicating with us throughout the term.
We all share the same goal – making sure the loan redeems on time and the borrower is able to create wealth from their property.
And we’re still seeing plenty of opportunities to do that in 2023.