State of the bridging market

Bridging market holds its own

Jake Carter gets the latest on bridging in turbulent times

While the wider economy has been enduring a turbulent period, the bridging market has managed to remain stable. Data collected by the Association of Short Term Lenders (ASTL) has revealed that bridging applications, completions, and loan books all rebounded in Q2 2022.

Completions were just over £1.2bn, representing an increase of 17.4 per cent on the previous quarter, and completions have now been more than £1bn for five consecutive quarters.

Applications have also risen considerably to £7.5bn – an increase of 18.7 per cent compared to the quarter ending in March 2022, and the size of loan books rose, reaching a new high of just under £6.1bn.

“We expect next quarter’s figures to show continued stability and probable growth in numbers across the sector. Our third-quarterly data assessment will be key in identifying current trends,” said Vic Jannels, chief executive of the ASTL.

BRIDGING MARKET CONDITIONS

Roxana Mohammadian-Molina, chief strategy officer at Blend Network, explained that as a specialist development finance lender, she has seen a growing number of bridging enquiries in recent months.

Roxana Mohammadian-Molina put simply, bridging has been elevated from a highly specialist financial product that was only used by a very select group of property developers to being a product of mass consumption in the real estate market,” she said.

As such, she explained that there is now a strong and growing demand in this product space, but she did concede that it certainly is a fluctuating market at the moment, which means that for borrowers it is often hard to know which lender is more competitive.

“In recent times the bridging market has seen its rates continue to fall, dropping almost in line with more mainstream areas of finance,” said Emily Hollands, head of specialist finance at OSB Group, which is the parent company of Precise Mortgages and InterBay Commercial.

She believes bridging has become less of a last-minute option and can offer real benefits that customers will consider from the outset over other finance options. Bridging is rising to the forefront in many people’s minds.

“At OSB Group, we have seen an increase in the market, and while complications continue to plague the economy, we expect to see interest in bridging remain,” she said.

Chris Oatway, co-chief executive of LDNfinance, said that the bridging market is relatively buoyant at the moment for both regulated and non-regulated offerings.

“We are seeing two sides of the industry unite; one that helps regulated house-sale chain-breaks, which are occurring more regularly in an intense purchase market, and the other on commercial investment purchases that are too good to lose out on,” he said.

ECONOMIC CONDITIONS

Jannels explained that, as with every sector, there will be concern about the rising cost-of-living and potential continued increases in trade supplies for those involved in development projects.

However, Mohammadian-Molina pointed out that, so far, the market has not yet seen any signs that economic conditions and concerns over a recession have affected the bridging market, and she does not believe there will be a considerable slowdown there.

Emily Hollands

“I believe that the economic slowdown will likely affect the mortgage market more, particularly the mortgages for

first-time buyers who are the customer category likely to be most affected by the interest rate hike cycle,” she said.

According to the Bank of England, the £17bn in mortgages advanced to first-time buyers in Q2 2022 was down by 21 per cent from Q2 last year.

Oatway said that, despite economic conditions, the number of bridging products has increased with the expansion of more lenders into the market.

He believes the increased competition is a positive, as it means lenders will have to improve both their service offering and proposition in order to get more business.

Hollands explained that while economic conditions have not had a direct impact on bridging, people were reassessing their options. People now have more considerations when assessing what finance options are best for them, and therefore timeframes have slowed.

ASSISTING THOSE IN THE BRIDGING SPACE

Moving on to what could be done to assist those in the bridging market, Hollands believes education is very important. She said it is essential for lenders to educate brokers on their products and keep them up to date with any changes they make.

“How well do brokers truly know the bridging market? It is crucial that they be aware of the ins and outs of the space,” she said.

Hollands explained that brokers must know how to approach a bridge, how to package, what the corresponding fees are, and all the essential criteria so they can accurately inform their clients.

Mohammadian-Molina also believes that a lot more could be done to assist those involved in the bridging market.

“In particular, more regulation and transparency in the bridging market will most likely be welcomed by participants in this industry. Traditionally, the lack of transparency in this space has hurt the reputation of the market,” she said.

Jannels said that some regulations that have been introduced across the whole mortgage market recently seem to overlook the short-term nature of the bridging sector.

Similarly, he noted that the application of new rules will prevent re-bridging to the same lender, if required, at the end of a term on regulated cases, which he believes may be detrimental in a number of situations.

“However, at the ASTL, we have opened regular dialogue with the regulator, and we hope that this may help to create greater understanding of the differences between short-term and standard-term mortgage business,” Jannels said.

CUSTOMERS AND CLIENTS

With economic conditions worsening in recent times, Jannels pointed out that bridging rates have generally remained low and have not yet been subject to the rising cost of term mortgages, so he believes it is fair to say that they have fared well.

“In a rising rate environment, it is likely, possibly inevitable, that rates will rise in the sector, and it remains to be seen what impact this will have on consumer confidence,” Jannels said.

However, even in a rising rate environment, he noted that the market remains very competitive, with plenty of options for customers.

Hollands noted that consumer behaviour has changed quickly due to wider economic uncertainty. As such, she explained that for customers using bridging, their exit strategy must be clear and well thought-out.

She believes there are enough lenders out there to assist in this department, and said that it is the broker’s role to pair the right lender and customer.

“From what I have seen, customers are faring well in the bridging market given the current economic conditions, and demand for bridging products remains strong,” added Mohammadian-Molina.

Vic Jannels focused on the green agenda, Hollands said it is unknown whether Prime Minister Liz Truss will have the same enthusiasm for improving energy efficiency. She explained that bridging was expected to step in here and help in a big way, but this is now unclear.

“While it will be a tough couple of months, I expect the bridging market to reach the light on the other side,” Hollands said.

Jannels noted is that most bridges need an exit option, and this is normally in the form of a term mortgage. As such, he believes that is an area that is likely to determine the future levels of borrowing in the sector.

Mohammadian-Molina said she has seen heightened demand in bridging as people try to create additional value for the projects they have.

“Refurb is an area in which there is real opportunity – bridging can assist people in improving the energy efficiency of their homes,” Hollands outlined.

Hollands explained that having a low EPC rating may make a property un-mortgageable, which is where she believes bridging can step in and help.

Oatway said that, naturally, there are concerns over the next 12 months that businesses are going to be affected by wider economic factors.

“For example, rising interest rates are likely to take effect, as well as a 0.75 per cent expected increase. This may suggest the market is heading into a strong headwind,” he explained.

“However, there is still plenty of liquidity, so even though funding may be harder, we are still confident we will always be able to fund the deal that comes in; it may just be at a higher price,” Oatway concluded.

Chris OatwayChris Oatway