Is there still a place for bridging finance?

By Harry Landy, Managing Director of Enterprise Finance

This month I wanted to take a closer look at the bridging market, because with contradictory news about the mortgage markets and property transactions over the last month or so, it is little wonder uncertainty is reigning supreme in the sector.

On the one hand, we had UK Finance’s household finance update telling us that mortgage lending fell by 1.2% year-on-year in August despite a 9.2% increase in remortgaging.

On the other, we had the results of the August survey by the Royal Institution of Chartered Surveyors (RICS) telling us that the property market was “solid”.

The latest index from Halifax indicates that the housing market is stable, with average prices 2.5% higher than a year earlier… but some industry commentators reported that house prices fell sharply in September.

On the same day in September, two tabloid headlines – analysing and interpreting the same data from Halifax – gave us diametrically opposed points of view. Again, it’s no wonder there is uncertainty.

Why do I bring this up in relation to bridging finance? Property transaction data and mortgage market activity are markers of the health of the bridging sector, with property sale or (re)mortgage the most common exit strategy for borrowers of bridging finance. Naturally, a buoyant property market of steady and rising prices and increasing transactions makes all of us feel more secure about bridging.

But we have to remember that this isn’t all that bridging is about. Bridging is about opportunity. (Or more specifically, helping the borrower take advantage of an opportunity). Bridging is fast. Bridging is flexible. Bridging is adaptable. Adaptable to the changes, the swings and volatility in the property market. No matter what happens with Brexit, or with property prices or anything else – specialist short-term lending will always thrive because of these qualities.

Bridging is often considered to be a solution for a broken market. If the worst happens with Brexit, the bridging finance sector will find a way to (safely and responsibly) help borrowers. It’s for this reason that I encourage your brokers, intermediaries or advisors to take a serious look at how bridging can make a positive impact on their business – because the opportunities will only increase over the next few years.

As a separate indicator to the health of the market, research by West One Loans for their Bridging Index has shown they believe the market has reached a high of £6bn in annualised lending by the end of Q2 2018. Using their own data and that of the Association of Short Term Lenders (ASTL), they have shown that there are still high volumes of transactions. Yes, some of the headlines from the press might point to a lower value of loans written in Q2 – but compared to one year previously, loans written (£), loan book (£) and applications (£) are all up – and on top of that, the number of repossessions is still lower than a year ago. This is all positive news for bridging, despite the contradictory headlines perhaps giving the impression bridging is too risky a part of the market to be involved with.

Buy-to-Let

It would be remiss of me not to mention the first anniversary of the PRA changes that came into effect at the beginning of October in 2017. Landlords are no-doubt feeling vilified at the moment, and who could blame them? Hot on the heels of PRA has been changes to the tax regime, EPC ratings and – from the 1st of this month – HMO guidelines too.

It’s true that these changes have the potential to see a reduction in the number of landlords across the UK. Headlines such as “The Buy-to-Let market post-PRA described as a ‘car crash’” certainly won’t encourage your advisors. And it’s true that landlord purchase transactions have fallen.

But BTL remortgaging is up. This points to a wary, cautious but sensible market. Even more, we’re still a nation of property lovers, demand is still high, development finance lending is increasing, new ‘Build-to-Let’ products are entering the market, savings rates are still poor and there is still a low cost of finance. This is all encouraging news for the Buy-to-Let sector, so it remains a key opportunity for your advisors to proactively support their landlord clients – because they need specialist advice now more than ever.

Enterprise News

Our October roadshows with the Society of Mortgage Professionals (SMP) have started, where we have been (and will be) presenting on Second Charge mortgage products. As well as presenting on the usual whys and wherefores of the products – we’re taking the additional step of explaining how brokers and intermediaries should position the product with their client, as our research shows that completions are higher when we pitch the product to borrowers. This ‘added value’ information should see intermediaries increase their own Second Charge mortgage completion levels.

At the time of writing we’ve had successful meetings in both Leeds and Birmingham, and are looking forward to the Kent, London, Norfolk and Glasgow events.

These events are free to attend for both members and non-members – and offer 3 hours and 50 minutes towards attendee’s continuing professional development. Non-members can attend for free by registering with the SMP.

Find out more about the events here…