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feature
opinion counts ...
Short-term finance can help
portfolios grow in long run
Bilal Ahmed looks at how short-term finance can help innovative landlords solve the housing crisis and grow more profitable portfolios.
W
ith UK pension reforms
soon to come into effect, I
see potential for landlords
to increase their portfolio in addition
to new landlords entering the market
as pension pots get drawn down and
properties get snapped up. Personally, I
think the more shrewd investors will see
this as an opportunity to buy multiple
properties and build an impressive
buy-to-let portfolio quickly, rather
than the more cautious approach that
realises just a few homes to rent out.
Although the short-term finance
sector is going through something
of a growth spurt, I believe there are
more exciting times ahead; we’ve only
scratched the surface of the potential
market. Creative thinkers in the market
are looking at innovative ways of
generating profits and helping solve
the UK’s housing shortage.
In 2014, the Government relaxed
the rules on converting office space
to residential property, introducing
temporary permitted development
allowing the conversion without having
to apply to local planning authorities
for permission.
This has already created a lot
of new residential properties, but
the Government is coming under
increasing pressure from Councils
to end these new rights, when the
current deadline for conversions to be
completed runs out in May 2016.
Of course, for many of these
conversions, short-term finance is
the perfect solution and I believe
the market is gathering momentum
as prospective landlords, existing
landlords and developers are looking
to get things moving. We recognise
that short-term finance is there to get
projects through to completion and
conversion of offices into residential
properties is an ideal scenario.
We are getting interesting enquiries
from all sorts of borrowers; some
experienced, some not so, but all
engaged in very different strategies
to grow their portfolios. Short-term
lending is opening up new opportunities
when used in conjunction with more
mainstream finance.
And as we’re aware from the answers
to our questions at the Landlord and
Lettings Show, a majority of those
attending expect to increase their
portfolio in 2015, but only about
15% have used short-term finance to
facilitate their growth strategy.
However, 85% would now consider
using short-term finance or bridging
loans to purchase more properties,
which perhaps suggests the fear factor
previously associated with short-term
funding is reducing and encouraging
more cautious investors to take a little
more risk.
Another interesting insight from
our survey was that the majority of
those questioned admitted to buying
a property in need of refurbishment,
which when considered against the
figure of only 15% using short-term
finance suggests capital is being used
to complete projects, when it could be
used for deposits on more properties.
I think that demonstrates the current
cautious approach of prospective
landlords. When they are using capital to
refurbish properties rather than finance,
their expansion plans are naturally
slowed. Admittedly, I have a vested
interest, but I would still like to see more
buyers use short-term finance to buy and
renovate traditional properties or even
get involved in some of the smaller office
to residential conversion projects. These
new landlords with growing portfolios
will then be able to take advantage of
the growing competitiveness in the buyto-let mortgage market; it’s all about the
return from the investment either long
term or short.
More experienced landlords, or those
with larger property portfolios, will
typically manage their assets closely
and ensure they have the right yield on
each property, whilst releasing equity
for future expansion of their portfolio by
gearing up on their existing properties.
We are not only seeing enquiries for
larger loans than early last year, but we’re
now beginning to see an increasing
number of investors looking for revolving
trading facilities to help them buy
additional properties more quickly and
easily, allowing them to take advantage of
rental and capital growth opportunities.
Of course, from my perspective,
getting the right advice is just as
critical as finding the right properties,
and short-term finance, when used
wisely, can help even the most cautious
investor build a better portfolio.
by Bilal Ahmed, Chief Executive Officer of Signature Private Finance
Bilal Ahmed is Chief Executive Officer of Signature Private Finance, a privately owned principal lender and one
of only a handful in the Midlands. He has experience of every aspect of the property market, from purchase
and development to refurbishment and disposal, across both residential and commercial sectors.
A Birmingham local, Bilal was surprised to find no principal lender in the city, so he corrected the situation
with the creation of Signature Private Finance in 2013. He is a hands-on property financier, happy to don
his hard hat and walk a site to assess the investment potential for clients, whenever necessary.
24 Landlord & Buy-to-Let Issue 57 • March 2015