Not every lender can translate success from their core business into a bridging arm – it requires a particular skillset
Since my last column, Aldermore has withdrawn from the bridging market. It would be easy to interpret this as a result of the Brexit vote but the alternative may be that bridging did not fit with the firm’s core business. Aldermore has been a huge success and there is no disgrace in recognising where certain initiatives are failing and then putting them out to grass.
While there are lenders, such as Precise and Shawbrook, that have successfully ‘bridged’ the gap between specialist lending sectors, there is no guarantee of success. Bridging requires a particular skillset and not every lender can translate success from their core business into a bridging arm.
I am often asked why the main clearing banks have not formally entered the bridging market. I question why they would want to. The sector, while still creating strong margins, is small beer as far as volumes are concerned and competitive in nature. It is far easier for clearing banks to either look at other forms of lending or act as funders behind the scenes.
If I was a bank, keen to be involved, I might consider buying an existing platform and the expertise that goes with it because that is where the real value lies.
Bridging relies heavily on specialist expertise and its other vital aspect is strong existing relationships with introducers. So it is much more difficult to get a foothold in an already crowded market, unless as a new lender you have access to both attributes.
It was nice to have a bit of an Indian summer as we crossed the official threshold into autumn.Of course, knowing our weather we cannot expect it to continue.
The same could be said for the good news emerging since the Brexit vote. The evidence so far is that, far from going into meltdown, the economy has been remarkably resilient, and recent bridging figures back that up.
According to the West One Loans Bridging Index, gross bridging lending rose by 27 per cent in the 12 months to 31 August and short-term lenders are providing nearly £2.9bn of finance annually – up from £2.2bn in August 2014.
Other indices broadly support the evidence of further gains but we are at least two years from Brexit itself and are still in the EU; the impact of our exit on the country’s financial wellbeing will be unknown for quite a while. It is encouraging that the immediate doom and gloom forecast by some has not come to pass but, as with the British weather, we know not to believe that today’s blue economic skies necessarily will continue without at least some grey clouds.
Indeed, some lenders have had to draw in their horns as their funders called a timeout to reassess their exposure in the wake of the referendum result. This demonstrates the level of control that funders have.
Wider funding range
Lenders are likely to be reassessing their own exposure to the whims of their funding sources and perhaps looking at other sources to tap.
Peer-to-peer is becoming popular, led by businesses such as LendInvest, which has done much to popularise the facility. In an ideal world, bridging lenders would have a blend of private, bank and P2P funding so as not to rely on a single source.
In five years’ time, the large players are likely to be better set up to withstand sudden shocks should one of their sources turn off the tap.
Phil Jay is director at Complete FS