At the start of a new year, it seems fitting to look back at some of the major things that have happened in the bridging finance world over the past 12 months and consider what we can expect this year.
Some of the more exciting news in 2015 surrounded the number of new banks and lenders entering the bridging market, in particular challenger banks Aldermore and Shawbrook.
Upping the game
It was a positive year for both in their own right as each successfully achieved an IPO. Aldermore completed its float on the London Stock Exchange in March, with an initial valuation of £650m. This was followed a month later by Shawbrook when it floated at an initial valuation of £725m.
Towards the end of the year two further bridging lenders, Masthaven and Amicus, announced plans to apply for a banking licence. We may well see them follow on a similar path of flotation further down the line.
A real positive for borrowers was the fall in interest rates for Bridging Finance.
Rates are now at an all-time low, with Precise offering deals from 0.59 per cent per month up to 50 per cent loan-to-value via its premier panel, and Shawbrook offering 0.69 per cent up to 70 per cent LTV on residential. As competition became fiercer, different lenders created niches, pushing the boundaries of the bridging envelope. Lending sizes also got larger and we saw the introduction of jumbo Bridging Finance, with several lenders completing on £10m-plus loans, including Dragonfly and Bridgebank Capital via its brand Quantum.
After 40 years of lending specialist mortgages, secured loans and bridging and commercial term lending, Blemain Group rebranded to become Together. It took into account feedback from brokers and customers, at the same time making huge advances in its technology platform, My Broker Venue.
Dragonfly announced it will rebrand to Octopus Property in the first half of 2016 and managing director Mark Posniak has ambitious plans to drive the lender on even further. It will definitely be one to watch this year.
Looking ahead to what else might be in store this year, bridging will undoubtedly be hit by greater regulation either directly or indirectly. The Mortgage Credit Directive comes into force on 21 March and will have additional impacts on regulated mortgage contracts, including bridging finance and some buy-to-let business. This will include a review of compliance documents issued. It will also limit the term of a bridging loan to no more than 12 months’ duration, with any required extension of term falling into unclear ground.
Bridging has been seen as a desirable sector for many lenders, both new and existing, so competition is fierce. As a result, lenders that want to continue to operate in this market will have to carve out additional niche areas.
I expect we will see more of the niche loans that started coming to market in the last quarter of 2015, such as regulated lending in Scotland and non-regulated business lending in Northern Ireland, and further refurbishment products, both in heavy and light refurbishment, becoming available.
This is where smaller lenders find their place in the market and the most creative will thrive. Particular ones to watch this year are Ortus Secured Finance and Roma Finance.
Finally, at the very boundaries of bridging, I expect to see the arena for ground-up development finance really grow.
While too specialist for many bridging lenders, there is a burgeoning demand for development finance as an increasing number of developers look to cash in on the growing confidence for new properties.
Those lenders with the appetite, funds and know-how are likely to see this develop into a highly profitable income stream.