Discovering how the bridging market operates in other countries could lead to further evolution and fuel even greater growth
According to the West One bridging index, gross lending stood at a record high of £2.17bn for 12-month period preceding July 2014. This figure makes impressive reading given in the same period to March 2012 the bridging industry broke the £1bn barrier for the first time.
In little over two years, the sector has delivered over 100 per cent growth. The apparent rise in popularity of bridging finance got me thinking about whether bridging is utilised in other parts of the world.
Bridging finance in France – certainly on a large scale and for residential property – appears to be limited. The product, known as Pret Relais, offers a loan on French property between 70-100 per cent loan-to-value on a full status basis and limited to a maximum term of two years.
As affordability for the loan is underwritten using bank statements and payslips, the rate of interest offered is far closer to that of a conventional term mortgage and far more competitive than equivalent lending via UK lenders. Obvious disadvantages are that it appears to be available for purchase only and capital raising is not permitted.
Despite full affordability underwriting, it is possible to obtain Pret Relais on a roll-up interest basis by taking out a specialist insurance premium for the loan duration. This is an interesting concept. Rather than servicing interest, an insurance premium is paid giving guarantee to any lender and preventing large deductions in gross lending without such indemnity.
Moving across the Atlantic, short-term property finance in the US seems to more closely mirror that of the UK. Taking California as an example, very few conventional lenders advertise bridging finance or gap loans as they are more commonly known.
One prime lender, ANZ Bank, advertised a product but it was at a low LTV and required interest to be serviced and full affordability checks are carried out. Much like the UK, bridging finance is catered for by boutique funders, presumably either syndicating on a peer-to-peer basis or managing institutional money.
Three leading bridging lenders in California are Arch Bridge Loans, Security Financial Services and Lone Oak Fund. All three offer three to 24-month funding on non-owner-occupied residential and commercial property, presumably as lending on owner-occupied property, as in Britain, is regulated.
Interest rates vary between 7.65-9.9 per cent per annum on a fixed basis and offer a maximum of 75 per cent LTV for first charge and 65 per cent for second charge security which seem broadly on a par with domestic pricing. Typical loan origination fees are between 2-2.5 per cent, which again is broadly similar to our pricing of product fees.
When reviewing recent transactions conducted by Lone Oak Fund it was clear to me how borrower uses for specialist property finance are the same whether in Brentwood, Essex or Brentwood, California.
Unsurprisingly, bridging finance is not a UK phenomenon but it is interesting to discover how funding, regulation, criteria and pricing work in different countries. This article merely scratches the surface but understanding different practices may lead to further evolution and fuel even greater growth.
Moving back exclusively to domestic matters, it would be remiss of me to not comment upon the recent acquisition of West One by Enterprise Finance.
Enterprise chief finance officer Emily Gestetner described the purchase as “unconventional” as “the market is more used to lenders acquiring distributors”. This is certainly true. Do keep in mind, however, a bridging lender has been purchased here and when is the last time you can recall the purchase of a bridging lender taking place? Bridging lenders have restricted “book” value due to the relative shortness of loan term. This deal is convenient for both parties as Enterprise can grow West One through its significant distribution and Enterprise gains three talented people in Duncan Kreeger, David Kreeger and Stephen Wasserman. I suspect this purchase was not significant in terms of cash but rather all continuing parties from West One can see equity uplift potential.
I wonder how lenders and packagers will view this purchase and if it will have an impact on how West One and Enterprise Finance are strategically managed. As managing director of a rival packager and distributor I have serious concerns in supporting a bridging lender which is wholly owned by a competitor.