Without doubt the biggest issue facing the industry is the credit crunch and the resultant lack of liquidity in the financial markets.
The bridging sector is not immune to this although it has been affected in a particular way. Bridging deals are inherently short term in nature and are differentiated from other secured loans and mortgages by their speed, flexibility and cost.
Bridging lenders aim to complete within timeframes that other lenders find difficult to match and most of them are specialists set up to deal with bespoke applications.
Although headline rates for bridging loans are higher than those of secured loans, when set against the profits customers are looking to make they are still competitive.
Although product terms range from one day to a year or more, given the annualised cost of the loans it is in lenders’ and customers’ interest that they are repaid sooner rather than later.
Just a few months ago, there was an abundance of long-term mortgage products available to customers seeking to repay bridging loans as soon as they could arrange products that suited their requirements.
But with fewer traditional deals available, many long-term lenders now require remortgage customers to have owned their homes for at least six months. This has forced bridging lenders to reassess applications to ascertain whether repayments are viable.
Bridging lenders must possess a thorough knowledge of the long-term market if they are to stop their customers getting into difficulties.
These insights will allow lenders to ensure that the agreed terms of bridging loans reflect the realities of the wider mortgage market and assess the ability of borrowers to afford them over realistic timeframes.
Bridging lenders are being forced to consider loan terms of more than six months and this has caused affordability issues.
The definition of short term is changing and will remain above six months until the credit crunch ends and the long-term mortgage market returns to normality.
Until then, bridging lenders and their customers will have to agree loan terms that were undesirable not that long ago but are now a necessity if the deals are going to work for both parties.