Fiducia: May trends and opportunities

May started with a sense of déjà vu over the uncertainty of the timing and frequency of interest rate cuts – though there is a consensus that rates will be cut at some stage…maybe soon?

Financial markets (which drive the cost of mortgages and commercial finance) hate uncertainty, and we do not feel that we can count on May to bring opportunities based on a reduction in the cost of funding.

How can brokers in a period of extended uncertainty add value to their clients and keep the wheels turning in their business beyond the ‘must do’ of refinance and product transfers?

We cannot forget that alongside rising interest rates we have also been through a recent period of rising residential property prices – to a point where a combination of the two could cause landlords and property investors to look in new directions for a solution to affordability, or for opportunities:

• Diversifying income from standard ASTs on single unit residential properties to HMOs is increasingly seen as a way to increase yield and reduce vacant periods
• Semi-Commercials add the element of longer term commercial lease to residential tenancies – and ‘mixed use’ opportunities don’t stop there when you can additionally adapt the residential element/s to HMO use over single unit flats, for example
• Portfolio landlords have recognised the benefit of short-term lets and holiday lets within a wider property holding – again diversifying income and altering the stress testing profile of their overall portfolio
• There’s attraction in immediately adding capital value to a property over purchasing something someone else has already refurbished and is making a profit on – we see strong demand for auction purchases with bridging finance, followed by a period of refurbishment work before exiting the short term funding into a Buy To Let mortgage

Brokers with owners and directors of trading businesses have the perfect opportunity to help their clients in periods of sustained inaction and uncertainty in the cost of borrowing:

• The cost of business opportunities is a major cause of sleepless nights in business owners – all of the costs of taking on a new business opportunity are immediate and up front, with all of the revenue from goods or services coming in at a later stage

Additionally is there an opportunity cost in not quoting for, or taking up, new business opportunities – will the client return if on this occasion a competitor fulfils the work?

• Many businesses took on shorter term debt in the last 4 years – some multiple times – and the cash flow constraints of servicing multiple short term loans can stifle productivity and growth opportunities – debt consolidation is a major help potentially to any of your clients in this position
• There’s a clear return on investment calculation for the addition of assets to a business – production vs cost, or in-house vs outsourcing for example

And there’s a major tax incentive for businesses to invest in new assets and vehicles – with 100% of qualifying spend eligible for ‘Full Expensing’ tax relief against corporation tax bills.

Where do we see the opportunities in May? They lie with the brokers who are proactive and looking for solutions that could add value to their existing clients, instead of waiting for market conditions to be right for the services that they traditionally work with.

Mark Grant, Managing Director, Fiducia Commercial Network.

May 2024.

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