The discussion of bridging loans does not usually lead one into the realms of philosophy, but this was recently the case over a lunch I had with Mortgage Strategy editor Paul Thomas.
Not unexpectedly, the conversation had turned to how large the bridging market is, with the consensus of the table being that it was almost certainly greater than £2bn as supported by the Association of Short Term Lenders figures.
Whatever the figure, it is safe to say that the market has expanded significantly in recent years. However, the fact remains that compared to the UK’s mainstream mortgage market, which is estimated at being over £200bn a year, the bridging market is really quite small.
Notwithstanding this, I ventured to Paul that the paper value of the bridging loans written is far exceeded by their worth to the greater economy as a whole and that bridging loans therefore punch far above their weight relative to some other forms of lending and finance. I shall endeavour to explain this hypothesis.
Whilst not downplaying the value to the economy and society as a whole of mainstream mortgages, which have spread the benefits of home ownership to many more people in the post war era, it is not unfair to say that these mortgages form part and parcel of regular property market activity to which we have become accustomed.
However, nearly 20 years of experience of short-term lending has given me a different perspective.
Bridging loans can be used for so many things, in some truly amazing circumstances, that I would say bridging loans add more value than just the nominal figures on paper. That is because they are very often enablers or facilitators and allow things to happen that would not have happened otherwise.
Let me give you an example to illustrate my point.
Take a mature borrower looking to downsize, for example. This is becoming increasingly common and research from the Prudential estimates over 2.5 million so-called ‘last-time buyers’ over 55 are looking to downsize.
At UTB we see many cases where such borrowers need or want to complete a purchase before they can sell their existing larger property. They do not need a long-term mortgage because the surplus equity in their home will repay the loan and also, they will not qualify for a mortgage by virtue of their age.
A bridging loan enables the downsizers to achieve an ambition that might otherwise have not been realised. Further “added value” may often come because the downsizers have moved to be closer to their family. That outcome is impossible to value in monetary terms, but is socially very important.
It is pretty much a truism that purchasing a property is one of the most stressful experiences in life. For many, much of that stress is associated with the property chain where a difficulty with just one part of the chain can cause enormous stress for all the other parties.
A “chain break” bridging loan usually secured against a chain member’s existing and new property can enable the chain to complete whereas otherwise it might have collapsed. Here many parties may stand to benefit from a bridging loan without even knowing it.
It is easy to be cynical about our sector – and it is by no means perfect – but properly and responsibly used with a viable exit strategy, short-term bridging loans play a valuable role in the lives of an increasing number of people and businesses.
As a sector, bridging may be small in absolute terms when compared to mainstream mortgages, but its value is immeasurable.