The housing crisis in England and Wales means that too few houses are being built because potential buyers cannot get credit. “Hard money” loans are being considered as a solution.
“Hard money” loans – more common in the US but largely between private parties in the UK – allow lending to individuals and businesses that may not be able to obtain traditional credit from a bank. They are collateralised, whereby an acceptable level of equity in an asset ensures the lender that their loan is protected in the event of default (usually a 60-70 percent loan-to-value ratio).
With lending at the heart of the UK housing crisis, can these specie loans help ease the problem should they gain traction? Will these subprime loans allow builders or homebuyers to access financing where traditional channels could not?
Most analysts don’t think so. First, coin lending as a private business is unlikely to be undertaken on a large scale without a larger, established lending institution. And the value of land as a basis for security is also unlikely – who can own land and not afford to build (except maybe land heirs)? Also, so-called specie loans are typically short-term, three years or less — good enough for a contractor, maybe, but barely enough time for a homeowner.
There are reasons to believe that the British would be able to build and buy more houses. A February 2013 survey of market watchers by financial news agency Reuters revealed some hopeful signs:
• UK home prices have not plummeted as much as America’s. For example, people who owned a home before 2007 are in a good position to trade if their income allows.
• With the threat of a triple dip recession looming, more people are working in the UK than ever before.
• Bank of England interest rates have remained steady at 0.5 per cent for those who qualify (which usually requires a large down payment on the property they wish to buy).
• Mortgage approvals rose to 55,785 at the end of 2012 and are expected to rise steadily in 2013.
• According to Nicholas Wrigley, Chairman of Persimmon PLC, a leading housing developer, the Government’s Lending Scheme (FLS) could become more widely used by lenders over time (there are those who disagree, but time will tell). .
The Guardian also reported in February 2013 that home sales are rising according to the Royal Institution of Chartered Surveyors (RICS). But the organization warms that the recovery is fragile and remains uninviting for first-time buyers.
Another means by which housing construction can begin to cater to the growing UK population is for builders to choose to build rental housing where it is most needed. With so many young families looking for housing, rents are rising while home ownership is falling. “Triple-dip-induced paranoia appears to be dogging the market, with many potential buyers in the family sector choosing to rent for now,” said the director of a Wakefield-based real estate agency.
Another broker in Maidenhead, Berkshire, noted, “Buy-to-let investors are making a noticeable return to the market.” mortgages granted in the last year. Building societies (BSAs), mutually owned by members who have historically encouraged individual home ownership, are increasingly making loans to landlords instead; This is due to both demand factors and higher fees from buy-to-let customers resulting in higher revenues for these companies.
It appears that investors in strategic real estate and housing development are exploring different means to increase the housing stock and thereby achieve wealth growth. Before making such an investment, individuals should work with a personal financial advisor who can weigh risks holistically versus alternative investments.