What is the bridging finance industry worth?
The bridging finance industry is currently worth in excess £4 billion, according to data from the Association of Short Term Lenders (ASTL). According to the latest figures, the overall value of bridging loans written in Q3 2017 has increased 38.9% compared to the same period last year.
Benson Hersch, CEO of the ASTL said:
“It shows that the industry has remained resilient despite the threat of Brexit and low growth in the economy.The figures also demonstrate that bridging loans remain an excellent alternative where traditional financing is not immediately available for customers.
“The bridging sector, therefore, continues to provide a vital role in the economy by offering customers access to the capital they need in a responsible and sustainable way.”
The growth of bridging lending
When the credit crunch hit in 2007, the bridging market was relatively unknown in the world of mortgages and was only offered by a small number of specialist lenders.
But as mainstream banks tightened up their lending criteria, there became a gap in the market to assist with homeowners and landlords looking for short term finance. For those looking to move home before their original house has been sold, bridging provides the quick access to finance to move and repay once their original house has sold. A huge market has emerged for buy-to-let investors and proprietors looking to access funds for renovations, refurbishments and development of new and existing properties.
“The bridgingfinance industry has grown significantly since 2011,” Benson tells the Chartered Insurance Institute.
“In September 2011 annual bridging completions were worth only £474million, but the most recent data set to be completed by ASTL members in late 2017 showed that annual completions were worth £2.8billion. Our estimate is that these figures cover only circa 65% of the market, so the actual size of the UK bridging market is more likely to well in excess of £4 billion.”
What is fuelling the demand for bridging finance?
Complimenting mortgages: Whilst also a short term alternative to mortgages, bridging finance is also complimenting mortgages and property completions. The report states that this type of finance is no longer just for homeowners who need to complete on the purchase of a new home but the property developers are driving the growth. Bridging is also being used to for fast-growth businesses and even being used to pay inheritance tax bills to release the estate where there is no other short term cash available.
Speed of transactions: Businesses and property developers are attracted to the speed of funding. Whilst mortgages can take several weeks or months, the opportunity to receive funds within 2 to 3 weeks of applying and avoid traditional property chains is very appealing. Repeat customers with a good report with their lenders may get access to funds faster which is only stimulating the growth.
Need for quick sales: In a competitive sector, property developers need access to funds fast. This is a priority for those buying property at an auction which requires payment within 28 days or trying to beat a rival from purchasing their desired property.
Industry competition: With the bridging industry becoming more popular and lucrative, there are more brokers and lenders than before. Whether competing heavily on terms or trying to broker a deal, stakeholders are advertising heavily online, trade shows and in print trying to get attention and potential business. The ASTL currently estimates over 40 active lenders that are part of their organisation and hundreds of brokers across the UK.
Changes in regulation
Bridging can be facilitated as regulated or unregulated activity, but all lenders must abide by a Code of Conduct and Value Charter which covers all business. Some of the main differences between regulated and non-regulated activity involves the use of credit checks and being able to lend against someone’s primary residence (regulated activity).
The mortgage credit directive was introduced in March 2016 by the Financial Conduct Authority. The new measures were introduced to increase transparency and competition amongst lenders and allow potential borrowers to make better informed decisions.
The key features of the directive require all mortgage offers to be presented in APRC (annual percentage rate of charge) to show all fees and costs associated with a mortgage, for the entire loan term and make it easier to compare against other products. Other key characteristics include the receipt of a European standardised information sheet (ESIS), a 7-day reflection period to give applicants some breathing space to consider alternatives and now all lenders must be able to offer early repayment as part of their loan agreements.
The FCA proposed a deadline for SMCR (Senior Managers and Certification Regime) on 9 December 2019 which was designed to regulate the behaviour of directors of regulated entities. It does not affect directors of unregulated entities.