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Bridging Watch: Patience could pay in the long term

Loan applications totalled more than £5.96bn in Q1 2019, yet with a drop in completions, lenders must exercise caution in a sluggish market

As with many other industries, these are interesting times for bridging. The market is growing and there is significant appetite to lend from traditional bridging lenders and new institutions, but property transactions are subdued, and this is changing the dynamics of the sector.

Members of the Association of Short Term Lenders wrote more than £4bn of bridging loans in 2018, representing a rise of 14.8 per cent on 2017. However, the value of completions during Q1 of 2019 fell by 13.1 per cent on the same period last year, even though applications were at record levels. Consequently, bridging lender books are at an all-time high as a percentage of completions.

The waiting game

One reason for this is that loans are staying on lenders’ books for longer. The standard length of a bridging loan used to be around nine months, but feedback from members indicates that it is now up to 10 to 12 months.

This is a symptom of a stagnant property market, where exiting a loan through the disposal of an asset can take a significant amount of time. According to RICS, the average time taken for a residential property to sell from listing to completion is 19 weeks – the longest period since the series was introduced in 2017. And RICS says that the South East exhibits the most protracted duration, with listing to completion taking an average of 21.5 weeks.

The April 2019 RICS UK Residential Survey results point to a continuing trend of headline indicators on demand, supply and prices remaining, on the whole, stuck in negative territory. And RICS adds that Brexit uncertainty and a lack of available stock to purchase remain the key constraints, meaning little change in momentum is anticipated in the near term – although its expectations are at least slightly more positive for the 12-month horizon.

As a result of the faltering market, one growth area of the bridging sector is as a means of financing a gap between property transactions. This was traditionally a common use of bridging but, in recent years, the product has been utilised more widely as a criteria bridge between lending products.

In addition, as lenders are, on average, holding loans on their books for longer, they are assessing applications with more scrutiny. It is now typical for a bridging loan to take between six and eight weeks to complete from application. This might be frustrating for brokers, but it is a positive sign that bridging is being identified as a solution over longer terms and products are being developed to meet the changing demands of the market – we are even seeing bridging terms of up to three years.

Sustainable growth

It is also positive that lenders are maintaining a robust approach to underwriting, despite this period of low property transactions and high levels of competition.

Appetite to lend remains among most traditional bridging lenders and new institutions that are keen to invest in the UK market.

This is good news for customers, intermediaries and the growth of the sector, but in order for this to be sustainable, lenders must resist the temptation to write reckless business in a drive for short-term market share.

The ASTL’s Q1 figures show that bridging loan applications totalled more than £5.96bn in the first quarter of this year, representing a rise of 6.9 per cent on the same quarter last year. This indicates a stronger Q2 for completions, which is often the case.

Now is the time to be patient. A positive, or even neutral, outcome for Brexit should create more certainty and greater confidence among consumers. There are many commentators who believe that delays due to Brexit have created a dam of pent-up demand and that a successful resolution could spark renewed liquidity in the market, more transactions and higher volumes.

Those lenders that have maintained a robust approach to underwriting and a strong book during this period of low transactions will be best placed to benefit from a more fluid property market.

Benson Hersch is chief executive officer at the Association of Short Term Lenders

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