I’m writing this week’s blog from our little pine-lodge getaway in East Sussex. The sun is shining and I’m looking out over beautiful countryside. Life is good and so is the state of the bridging market.
I think there were those industry sceptics who were convinced that bridging may have peaked in 2013 and that it may have had its day. With Q1 finished, I can report that the bridging market is continuing to go from strength-to-strength, with March in particular proving to be the best month yet, with more written and completions than in January and February combined.
I think there was always a fear that bridging had only grown in popularity when mainstream banks either had no funding or no appetite to fund. Banks were closed for business following the Credit Crunch, whilst bridging lenders were open for business 24/7, 365. Bridging boomed and the number of new entrants to the market has grown massively since those dark days of 2007 and 2008. Lenders have evolved to offer a whole suite of products in response to a market hungry for funding. We’ve seen innovation from lenders such as Precise, United Trust Bank, Dragonfly and Shawbrook who have ventured into medium term loans and products such as Bridge-to-Let, which combines the traditional bridge with a buy-to-let term loan on exit.
So now the High Street is open for business again, why is bridging still booming?
There are several answers, but the main one is that bridging has now become an integral part of the mortgage funding market, along with second charge mortgages and other, former ‘specialist’ or ‘niche’ areas. Brokers and borrowers realise that there is a permanent place alongside mainstream funding for these specialist products. For example, just because there are more Buy-to-Let schemes available today, since the Credit Crunch hit, it doesn’t automatically mean that bridging is no longer required.
Professional property investors realised this years ago and have been utilising bridging to make property transactions work for years. Properties requiring heavy or even light refurbishment have and always will remain unsuitable for mortgage funding. The dreaded retention has killed many a mortgage deal and this is when bridging should have always been considered.
Similarly, as regulations have tightened and schemes such as ‘Let to Buy’ have been withdrawn, so has the need for legitimate ‘chain-break’ funding, where clients can use a short term bridging loan to bridge the gap between purchasing their new property and selling their existing home.
Rates are lower than ever. Lending is fairer and more ethical than ever. Competition is tough and the bridging sector sees some of the toughest competition out here for lenders fighting over those ‘Vanilla’ deals, especially in prime Central London and the South East.
However, we continue to see an increase in demand for bridging all over the UK, including the Midlands, the North and across the border in Scotland too. There are now lenders for almost everyone scenario and almost every deal we see can be placed.
With the recent changes that have had to be implemented by lenders and brokers following MMR, we will undoubtedly see a few lenders withdraw from the market. Many have simply stuck to what they have always done and only offered non-regulated Bridging Finance. We will now see more of a divide than ever between regulated lenders and non-regulated lenders. I would add at this stage that regulated is not superior or better than non-regulated. Some of the most ethical and fair lenders I know operate in the non-regulated space. They offer funding solutions to property professionals with a genuine need for non-regulated Bridging Finance.
Those lenders who do offer regulated Bridging Finance have had to make changes to systems and procedures to ensure they remain compliant. Bridging Finance are limited to a 12-month max term and nearly all lenders have stopped offering clients the ability to service debt monthly, which forgoes the need for the lender to delve into affordability checks, whilst let’s be honest, most borrowers would not be able to service payments at bridging interest rates.
The key factor, as always when assessing any bridging transaction, has always been, and will remain, the borrower’s ability to repay the bridge on or before the end of the bridging loan term. This is where the feasibility of gaining a refinance needs to be considered at the outset and bridging needs to be based on the broker’s ability to prove a refinance exists before the client commits to a bridging loan. It is a stepping stone to longer term funding. Not a term lending solution. It gets clients from A to B, whether that be moving into their new home or buying an auction property to refurbish and retain on a Buy-to-Let.