Vic Jannels

Busting myths in bridging finance

Vic Jannels

CEO, ASTL

The Association of Short Term Lenders (ASTL), in addition to supporting its members and striving to uphold high standards of customer outcomes throughout the industry, has made an ongoing commitment to driving education and awareness around bridging finance. In order to understand the extent of the issues at hand, we recently conducted research alongside YouGov among more than a thousand property owners in the UK, in order to understand some of the more common preconceptions around short-term loans. This highlighted some interesting trends, some of which were disappointing, confirming a widespread lack of understanding around bridging – but there were also many positive predictions to be made for the future of this vital product.

Keep an eye out for the full white paper and its surrounding commentary and analysis, due to be launched at the ASTL conference in October 2022, but in the meantime, I want to use this space to take a look at some of the biggest myths currently around our market, as highlighted by the research.

MYTH: PRICE GOUGING

Almost half (47 per cent) of respondents said they would avoid bridging because it was too expensive. However, 54 per cent also admitted they did not know what the average annual rate for a short-term loan might be. If nothing else, this clearly demonstrates a glaring perception gap.

The truth is that short-term finance is indeed more expensive than a mainstream loan. However, this is money lent often at a higher risk to the lender, with much faster turnarounds, and underpinned by human underwriting, all of which create a premium.

Rather than writing it off, it is important to weigh up the benefits for each individual case. If it means the difference between a lucrative transaction moving forward or falling through, borrowers might well change their perspective on the extra cost.

It is also worth remembering that, while higher rates might make people baulk at first glance, this loan might be taken out for as little as three months, and in many cases twelve at most. Bridging rates have also dropped significantly over the years since this product first came on the scene, and with rates often under 0.50 per cent per month, over short periods this creates a much more positive picture than many might realise.

MYTH: COWBOY FINANCE

When it comes to oversight, 51 per cent of our respondents had no idea of the regulatory status of the bridging market, with only 18 per cent correctly identifying that this market consists of both a regulated and unregulated sector.

Bridging has long been subject to concerns among those less familiar with this market regarding potentially dodgy practices – and there might have been a time in recent years where some of these preconceptions rang true.

Having vast sections of the market that do not fall under the Financial Conduct Authority (FCA)’s jurisdiction might sound concerning, but it is worth noting that regulation is only one of the factors that keeps a market honest.

The truth is that any situation in which money changes hands runs the risk of being spoiled by a few proverbial bad apples. It is our considered opinion, however, that the overwhelming majority of shortterm lenders perform to incredibly high standards.

If in doubt, look for the ASTL’s stamp of approval, as this means a lender ascribes to our stringent code of conduct and believes, like us, When it comes to oversight, 51 per cent of our respondents had no idea of the regulatory status of the bridging market, with only 18 per cent correctly identifying that this market consists of both a regulated and unregulated sector

that it is in the best interests of the bridging market to deliver a transparent, positive approach to customer outcomes, regardless of regulation.

MYTH: A LAST RESORT

Overall, 61 per cent of respondents said they were unlikely to use bridging finance if they were to face a chain-break scenario, despite this being the exact scenario in which non-professional property owners are most likely to need it. For many, this speaks to a lack of understanding, which, for all the reasons mentioned in this piece, and possibly others, may (wrongly) encourage consumers to avoid the sector.

Short-term finance is not a panacea. It may be the right option, depending upon the need. It will not be right for everyone, yet there are many who would wrongly overlook it because it might be seen to be a risk too far.

When these decisions are made based on preconceptions rather than fact, and when people fail to consult with an expert as a result of outdated myths that still persist, we all miss out. If we can shake off these myths, not only will the short-term finance market benefit, but, more importantly, ever more borrowers will be able to make the most of the purchase process, fund valuable improvements, get the best results from their money, and even bridge the gap to get their dream home.