Short-term mortgage lending has traditionally come to the fore during periods of uncertainty, providing a vital source of capital to help customers bridge a time of change.
This is certainly the case at the moment and, although demand for term mortgages has dropped this year, bridging continues to go from strength to strength.
According to the latest lending data from the ASTL, bridging mortgage loan books continued to grow in the second quarter (Q2) of 2023, increasing by more than 5% to an all-time high of just over £7.1bn.
Taking this approach may save money for downsizers
The figures, which are compiled by auditors from data provided by members of the ASTL, show bridging completions totalled £1.3bn in Q2 2023, representing a slight fall of 5.3% on the previous quarter.
This small drop was reflected in applications, which were worth £9.2bn for Q2; a decrease of 5.9% compared to Q1.
However, although applications and completions were slightly down on the previous quarter, they were both higher than in the same period last year.
Given that we are still faced with the vagaries of an uncertain economy, and a faltering property market, this represents another very strong performance.
Versatility
The reasons behind this growth are the versatility and resilience of bridging finance, which can be deployed to fund a transition period for an almost limitless array of circumstances.
To ensure sustainable future growth in our sector it’s important that lenders continue to take a robust approach to underwriting
For example, a current area of growth in demand is from older customers who use bridging to facilitate downsizing their property. Recent research from Key Later Life Finance has found that nearly four out of five (79%) over-55s with fixed-rate mortgages are concerned about being able to afford repayments once their current deal comes to an end. Of these, around 20% are extremely concerned.
While interest rates were historically low, there was little incentive for homeowners to consider moving to a smaller property once their children had left home. The mortgage payments were manageable and so it was easy to remain in a property larger than their requirements demanded.
The recent spike in interest rates, however, alongside the increased cost of heating and electricity, has encouraged many older homeowners to seek to lower their overheads by moving to a smaller property.
Short-term mortgage lending can keep delivering the right solution for a whole range of customers if lenders and brokers work together
Bridging finance enables downsizers to separate the process of selling their current property from the purchase of a new home, putting them in a stronger buying position and removing the stress of being caught in a chain.
Taking this approach may save money for downsizers in the long run if they are able to negotiate a better price on the property they are buying, given their stronger position, or to hold out for more on the property they are selling.
Vital role
Downsizing is a growing trend and it’s just one example of how bridging finance plays a vital role in facilitating the workings of the property market and helping customers to achieve their goals. Similarly, it continues to enable investors to refurbish or convert properties, and even provides a source of working capital for small businesses.
Although demand for term mortgages has dropped this year, bridging continues to go from strength to strength
It’s unsurprising, therefore, that a growing number of brokers are recognising how bridging finance can provide a valuable solution in their toolbox.
Amid this growing demand, we cannot ignore the wider economic environment, which is putting greater pressure on exit strategies. As such, to ensure sustainable future growth in our sector it’s important that lenders continue to take a robust approach to underwriting.
Now is not the time to be chasing volume at all costs but to make measured lending decisions based on an appropriate appetite for risk.
In this regard, it is also important that brokers work closely with lenders throughout the application process — to establish a viable exit route, with alternative options should this not be possible at the time of the loan’s redemption.
Downsizing is a growing trend and it’s just one example of how bridging finance plays a vital role
And this working in partnership with clear communication should continue throughout the term of a loan, revisiting a borrower’s exit strategy to ensure it remains appropriate and making alternative plans if required.
Short-term mortgage lending can keep delivering the right solution for a whole range of customers if lenders and brokers work together to ensure high standards are maintained.
Vic Jannels is chief executive of the Association of Short-term Lenders
This article featured in the September 2023 edition of MS.
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