View more on these topics

Bridging Watch: How do the new wave of lenders compare?

Jonathan Sealey

As new entrants flock to the sector, it may be difficult to compare like with like but there are key attributes to look for

The number of new entrants appears to be gathering pace. At least once a month there is news of another lender.

Many existing names find the mainstream market crowded, with low interest rates and high capital adequacy requirements leading to decreasing returns. No doubt they see bridging as a way to break out of that and increase shareholder or member value.

However, despite a growing number of sourcing systems with which to rate specialist lenders, it is difficult for brokers to compare like with like.

More than rates

The first thing most borrowers and brokers look at is interest rate. Increased competition is driving rates down. This may sound like a good thing but you get what you pay for. There are different risk levels in bridging, different turnaround times and different loan requirements.

A key point to consider is how a lender is funded: is it externally funded or is it a true principal lender with its own money? This can affect whether the borrower gets the money they need.

If a lender is externally funded, it is likely to have to go to an external credit committee for approval of a loan it has already given a decision in principle on.

This sometimes means the funds are unavailable or the lender has to renege on its original promise. On the other hand, a principal lender is entirely in control of the money it lends so, unless the borrower has not declared all the facts, yes will always mean yes.

Enter the building societies

Every lender is seeking a different niche. Building societies seem to be entering the market with one-year ‘chain breaker’ loans: regulated householder loans for people who need cash to buy their new house while the buyer chain behind them sorts itself out.

These appear to be relatively low-risk loans, with minimal individual underwriting. As a result, rates are likely to be lower than on many traditional bridging loans.

If they are sensible, other new lenders will look at different niche areas, such as ground-up development loans, short-term secured business loans or bridging loans as a second charge.


What is more dangerous is new entrants looking to enter the market at any cost. Existing larger lenders are big enough to compete on price. More bespoke bridging lenders compete on service instead, with high-level, high-speed, individual underwriting for quick purchases, buy-to-let development or refurbishment. Providing such a service will, by its very nature, cost slightly more.

The risks to the reputation of the industry are the deals that look too good to be true. If the price is too low, it becomes more challenging to provide the detailed level of individual underwriting required. This increases the likelihood of defaults and the risk of a lender falling into financial difficulty.

The same is true with lenders that take endless rebridges. There is a time for rebridging a loan: if work on a property has taken a little longer than expected, for example, but there is still a clear exit route and inherent profit.

The crucial element is the exit route. Endless rounds of rebridging are like a game of Pass the Parcel, except when the music stops the one left holding the loan loses.

The future

So where will we go from here? Rates will continue to fall, driven by increased competition, which is also likely to fragment the market as different lenders focus on different niches, but to an even greater extent than now.

Brexit negotiations may also shake up the market. If the UK does not get the deal it needs, externally funded lenders may find their funding lines pulled again. Meanwhile, those that have been involved in riskier lending may be a casualty of any downturn.

The surest bet has to be smaller, well-capitalised, independently funded lenders that still deliver in all economic conditions.

Jonathan Sealey is chief executive of Hope Capital



Together brings in two-minute bridging applications

Together has cut its bridging application process time from thirty minutes to two. The lender says brokers could generate a quote in sixty seconds and an offer in two minutes using the lender’s online portal, My Broker Venue. The firm has increased the maximum loan size on its regulated bridging products, taking it from £1m […]

Chris Fairfax

Bridging Watch: Time is right for higher LTVs

Offering short-term deals at a higher loan-to-value could mean excellent business so long as it is applied responsibly It is often said that time is the most precious commodity in life. When I think about the reasons why bridging finance has proved increasingly popular, it all boils down to time. Borrowers are buying more time. […]

Bridging Watch: Full steam ahead for bridging brokers

As complexity levels grow, advisers are in a prime position to drive the lending steam train rather than stoke the engine The more specialist areas of the mortgage market have become increasingly complex recently, much of which can be put down to stronger government and regulatory influence, not to mention a challenging economic climate. Focusing […]

InFocus - thumbnail

In Focus — February 2015

Jelf Employee Benefits looks at the issue of paying anaesthetist fees when the patient had no chance to discuss or agree to them prior to care; and provides recommendations for avoiding this scenario.


News and expert analysis straight to your inbox

Sign up

Why register with Mortgage Strategy?

Mortgage Strategy continues to be the market-leading B2B mortgage publication in the UK, and provides trusted, independent insight with the aim of helping, promoting and analysing the latest developments for mortgage professionals.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Mortgage Strategy Events
Be the first to hear about our industry leading conferences, awards, webinars and more.

Research and insight
Take part in and see the results of Mortgage Strategy's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now