4 minute read
Vic Jannels
Shaping perceptions of short-term finance
Vic Jannels
CEO, ASTL
Short-term finance has been in existence, in some form or another, for about 60 years. However, if you spoke to members of the public, they might never have heard the term, and might even have a negative perception of the idea of bridging finance.
This is enough of a problem at the best of times, when bridging is most commonly used – by those outside of the professional property investment sector, at least – in order to shore up chain breaks and keep the market moving.
Now, though, a lack of awareness and understanding of the uses and benefits of short-term lending means more than ever.
Bridging finance initially came into its own during the credit crunch, when mainstream lenders contracted their appetites, and economic pressures made even the simplest of deals much more complex. This should all sound very familiar to anyone paying attention to the current environment.
In times of crisis, specialist lenders are often able to step in and pick up the slack, using different funding routes and a human-focused approach to underwriting in order to continue lending.
It is important, then, that brokers and their clients, who might not yet have come across bridging outside of outdated and sensationalist headlines, understand the realities.
STARTING POINT FOR PROGRESS
The Association of Short Term Lenders (ASTL), the Financial Intermediary and Broker Association (FIBA), and the London Institute of Banking and Finance (LIBF) are working toward a better consumer and broker understanding of this market, through our Short Term Lending Educational Programme.
In order to understand the task ahead of us, the ASTL recently enlisted YouGov to conduct some much-needed research into the realities of consumer understanding of short-term finance. The report, Consumer perceptions of short-term finance 2022, aims to stand as a benchmark for progress. The full report is worth a read, but here I am going to take a look at some of the headline figures.
KNOWLEDGE VERSUS UNDERSTANDING
Promisingly, 67 per cent of respondents to the survey had heard of bridging finance. However, this does not appear as positive when you consider that 58 per cent overall said they were either unsure or outright did not understand how these loans might be used in a property deal. In the end, only 10 per cent were confident in their knowledge of the subject.
This lack of understanding plays out elsewhere in the research. When asked about details such as how long it might take to access bridging funds on average, or whether this market is regulated, the majority were either incorrect in their assumptions or unable to make an educated guess at the answer.
NEGATIVE PRECONCEPTIONS
A chain-break scenario is, for most of the population, the most likely situation in which bridging will come into play. This is even more likely at the moment, as people’s finances are made more turbulent, and mainstream lenders change or pull rates on a daily basis.
However, 61 per cent of people overall said they were unlikely to turn to bridging in the event of a chain break. There is some variation, with younger age groups more likely to accept short-term finance as an option, but evidently more must be done to ensure that those for whom this is the right option are at least aware of it.
Some of this hesitation may stem from historical preconceptions, such as that bridging is prohibitively expensive, cited by almost half (47 per cent) of respondents. While short-term finance is, by its very nature, more expensive than a term loan, recent years have seen rates drop to levels of affordability not seen before, as this market grows in strength and stability. The current economic environment will likely have ramifications for this market, but with different funding lines, specialist lenders are less at the mercy of rising base rates.
Brokers must ensure that their clients also understand that a slightly higher rate, when offset by the speed of service and ability to hold onto a deal that might otherwise fall through, is often worth considering.
MAKING PROGRESS
Gratifyingly, only 12 per cent of those surveyed mentioned “bad reputation” as an issue plaguing this market. This is no doubt in large part due to the hard work being done not only by trade bodies such as the ASTL, but also by the lenders and brokers integral to the daily workings of this market.
The next step is to ensure that HM Treasury, the legislators, and the general public truly understand the value of short-term finance. For that, keep an eye on the ASTL in 2023.
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