Security of funding under the spotlight as uncertainties persist.
I know it is a tired topic but, as positive and optimistic as I am about the future of specialist finance in this country, it is true that Brexit is causing a huge amount of uncertainty in the sector.
In the past couple of months, we have had UK Finance tell us mortgage lending was down but the Royal Institution of Chartered Surveyors claim the property market was solid. We have also had the ‘stress test’ from the Bank of England showing house prices might fall by a third, yet seen an increasing number of products and lenders, all dependent on house prices and property transactions, happily competing on price and loan-to-values. This all contributes to an economy’s least favourite word: uncertainty.
All of that said, demand for bridging finance is really rather healthy. Over the past few years, we have seen borrowers take advantage of increased opportunities regionally, with Greater Manchester, Merseyside, Birmingham and the East Midlands seeing investment, on top of the more traditional areas in London and the South East. Demand in Scotland is also expected to hit new heights.
I do not need to tell you (as your inboxes are no doubt filled with sales pitches from lenders old and new) that there are plenty of people out there hoping to take advantage of this demand, many of which are peer-to-peer lenders.
P2P lending has been enjoying a boom over the past few years. In Q2, over 150,000 investors helped facilitate more than £1bn of new lending, according to the Peer-to-Peer Finance Association.
Nobody can doubt that this is positive news and it shows how resourceful we are as a country that such lending has grown to the extent that it is now considered a legitimate source of funding, particularly for business. But I thought it worth noting the following…
Bridging ‘came of age’ 10 years ago almost as a by-product of the last financial crisis. Many borrowers came up against traditional lenders struggling for liquidity, so bridging finance became almost the only choice and demand soared. Bridging was the solution to a broken – or, should I say, uncertain – market. What we must remember is that it was a solution because it could provide the liquidity that dried up.
If bridging lenders cannot provide that liquidity, then should there be question marks over whether it will be a solution again should we go through another recession after leaving the EU?
This is why I mention the P2P model. With some platforms funding loans with investments from as little as £100 from investors – who I think we can safely describe as ‘casual’ – what happens if they decide they do not have the money to invest? What happens to the liquidity that has made bridging such a dominant force over the past few years?
I am not taking aim at P2P lending as a model. As we can see from the P2PFA statistics, it has clearly been a welcome addition to the types of finance available to borrowers. But it is an important tenet of the finance sector that security of funding is paramount in an uncertain market. And this applies to all lenders.
Thankfully, the variety of business models of bridging lenders reduces this risk and it will, very likely, be as adaptable, flexible and resourceful as it is now, should the worst happen. But I urge everyone to consider the security of funding of lenders, because we need this security. Lenders need it, borrowers need it and the sector needs it. The impact of lenders leaving the bridging market (voluntarily or otherwise) will only extend this period of uncertainty – and I am sure we would all appreciate some stability and normality as soon as possible.
Lucy Barrett is managing director of Vantage Finance