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Bridging Watch: Tough climate offers opportunity

The bridging sector is thriving despite the challenges facing the wider economy, with build-to-rent showing particular promise this year

There is an old saying in the investment world that “the time to buy is when there is blood on the streets”. To put it in a less graphic way, it is times of major economic, market or political uncertainty that often deliver the most compelling commercial opportunities.

It is for precisely this reason we are relaxed about the current climate. After all, savvier, professional investors that are financially strong will be more active than ever as uncertainty grows in the years ahead during the UK’s exit from
the EU. Specialist lending will thrive because it can adapt and, at heart, it caters for the canny. Bridging, for example, gives investors financial speed and agility, which are all-important when cracks in the market or economy create once-in-a-lifetime opportunities.

And the cracks are certainly starting to appear. In August, government house price data revealed the annual growth rate in London was at its lowest level since September 2009. The UK property market as a whole is also stagnant, with transaction levels anaemic.

On the economic front, growth in June slowed to just 0.1 per cent, down from 0.3 per cent in May. There is little momentum and, with the August rate rise likely to make both consumers and businesses even more cautious as Brexit negotiations crescendo, little hope it will improve.

As for the retail sector, do not even go there.

With household finances under the cosh, it is a house of cards. The crisis at House of Fraser is the latest symbol of a sector in a state of egregious disarray.

The decimation of sterling says it all. The pound has taken a pummelling in 2018 as the odds of a no-deal Brexit shorten and those of another rate rise lengthen – the latter despite the fact inflation is proving as stubborn as ever. Sterling is, well, anything but.

And yet, against this backdrop, the bridging sector is doing just fine. While recent data from the Association of Short Term Lenders showed the value of loans was down slightly in Q2, annual completions – a better gauge of market activity – were up by 27 per cent.

This exemplifies the resilience of bridging in uncertain times. ASTL chief executive Benson Hersch summed it up well when he stated that, while the property market is difficult right now, bridging lenders are continuing to prosper. He is not wrong.

One of the more dynamic growth sectors that bridging is playing a significant role in at present is development, whether ground-up, office-to-resi or refurbishment. PRS – or build-to-rent – is a particularly active sub-sector that bridging finance is helping to lubricate. With many amateur landlords exiting traditional buy-to-let due to the harsh taxation regime and tenants seeking long-term, lifestyle alternatives as the prospects of buying become more remote, build-to-rent is in the ascendancy. It is a step-change in the market.

What is also notable is that an increasing percentage of the bridging loans being provided by lenders are supporting projects outside the capital. For us, Manchester, Bristol, the Midlands and the home counties have proved especially active over the past year.

While London will always remain an active environment for specialist lenders, more and more bridging will be taking place in the major regional hubs. As investors seek margin, the balance of power between the capital and the rest of the country has started to shift.

With that in mind, perhaps the major challenge for our sector as we enter 2019 is to increase awareness of the value-add of bridging. For many investors, it is already a powerful tool but for many more still, it remains an unknown. That must change.

Jonathan Samuels is chief executive of Octane Capital

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