The bridging market is consolidating. Although the number of loans continues to increase, it seems there are fewer private operators in the market to meet them.
The good news is that the remaining lenders are predominantly those that are serious about bridging and know how to make it work.
Many new entrants have discovered that bridging is not the easy money they thought it was. As with any loan, it is not lending the money that is the issue but undertaking the due diligence to ensure it is paid back.
That exit route is not always so easy when the client’s intention is to transfer onto a longer-term loan. This could mean taking out a buy-to-let mortgage after refurbishing or developing a property so that it is suitable for rent, for example.
The intention to refinance a bridging loan can be good for brokers who can arrange both the bridging loan and the long-term mortgage as well. However, that means bridging lenders working more closely with mainstream lenders to determine whether the criteria will be suitable for the client taking out the bridge.
It is this that can catch out some bridging lenders, leading to the dangerous cycle of rebridging if things have not gone to plan: a dangerous game of Pass the Parcel for the lenders, which must hope they are not the ones left holding it at the point where the borrower can no longer pay, sell or refinance.
However, the benefits of refinancing onto a longer-term loan are leading lenders to work more closely with brokers. Lenders want to ensure that, where the client needs to remortgage in six or 12 months, the broker has a relationship with them so they will be on hand.
It is also important that the broker understands the mainstream market as well as they understand bridging, because they will play an instrumental part in making sure the client gets the long-term loan they need. That said, the broker often knows the mortgage market better than the bridging lender does.
The positive news is that an increasing number of brokers are engaging with bridging and are prepared to work in this collaborative way, especially as the market grows and becomes more mainstream.
Recent figures from the Association of Short Term Lenders show that its members have written over £3bn of bridging loans in a 12-month period for the first time. Despite the uncertainty surrounding the economy and all things Brexit, the bridging market continues to prosper.
Where the sector has an edge is in the very fact that it is short term. Where mainstream mortgage lenders have to think seriously about their borrower’s ability to pay in five, 10 or 20 years’ time, bridging lenders need to focus only on whether their funds will be returned in the next six months to a year.
While the long-term market plays a part in this, it does make bridging less risky in more uncertain times, especially if the loan exit route is a property sale.
With the problems around supply and demand in the UK property market, it seems unlikely that house prices will drop very far any time soon.
Jonathan Sealey is chief executive of Hope Capital