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Nine in ten brokers plan to increase level of bridging business over next 12 months

Most brokers think they will increase the amount of bridging finance they do over the next 12 months, according to a broker survey by specialist bridging lender Hope Capital, with 97% of broker saying that they are more than happy to work with unregulated lenders.

Hope Capital’s survey revealed that for more than half of the brokers who answered the survey, bridging already makes up at least 20% of their business, with one in 16 saying more than 80% of their business is bridging.

And that level is set to increase, with nine in ten brokers saying they think the level of bridging business they do will rise over the next year.

The survey also revealed that the part of the process that causes the most delays in the completion of a bridging loan is the speed of the client’s solicitor – almost a third cite this as an issue.  This was followed by collating information from the client, which is seen as the main cause of delays for 36% of brokers. Getting approval from lenders is an issue for one in five, as is, slightly worryingly, the brokers’ own understanding of the bridging process with 20% saying they have a lack of understanding or knowledge of the bridging process.

In terms of issues that brokers want to see addressed, the survey revealed that 52% think flexibility on LTVs should be a priority, while almost half (48%) say they would like lenders to consider lowering interest rates and improve the speed of service. Four in ten said acceptance criteria needs to be addressed.

Jonathan Sealey, pictured, CEO of Hope Capital said:

“Like any area of lending, there are areas that brokers would like to see improved, and we are keen to address these by always offering the fastest turnaround times and ensuring we are always transparent and flexible.  The call for lower rates is likely to be a never ending one however. Rates, including our own, have dropped substantially in the past few months and bridging loans are up to 3% cheaper than they were a few years ago, but while it’s natural that brokers always want them to be lower still, bridging rates will never be the same as mainstream as every loan is underwritten manually.

 “The other area that most brokers brought up as an issue is LTVs and that is something that, as a principal lender, we are able to address. Hope, has its own funds and is therefore able to make a decision about each individual client based on their individual circumstances.

“For example, we recently had a case with a client we knew well and were prepared to offer an LTV of 87% because we were confident that the property would be worth considerably more once the refurbishment was completed.”

Sealey says that overall the survey paints a very encouraging picture for the bridging industry and for Hope Capital as a lender with 99% of respondents saying either that they will, or are likely to, recommend Hope Capital.

“For the vast majority of brokers, bridging already makes up 20% of their business, and 90% say they are keen to do more over the next 12 months, which shows how much more mainstream bridging has become.

“Brokers are now turning to bridging lenders for a wide variety of reasons, often because the High Street is not offering the solutions they need or they are hoping for a more tailored service. At Hope, we have seen the level of lending increase significantly over the past year and, like the survey suggests, expect to see it continue to increase into 2018.”

Source: Bridging Loan Directory

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62% of brokers expect to grow their business over the next 12 months

Some 62% of finance brokers have said that they expect their business to grow over the next 12 months, according to new research.

United Trust Bank’s most recent broker sentiment poll asked brokers in the bridging, development, structured and asset finance sectors how they expected their businesses to perform over the next year.

The majority of responses were broadly positive with nearly two-thirds of brokers expecting their business to grow.

The results from the broker sentiment poll were:

In a similar poll carried out by United Trust Bank in December 2017, 56% of brokers predicted that 2018 would be a good year for their businesses, while a further 35% expected it to be “steady”.

Harley Kagan, group managing director at United Trust Bank (pictured above), said that it was hard to believe that we were halfway through 2018 and less than a year from Brexit.

“It’s encouraging, therefore, to see that most brokers are expecting to grow their businesses over the next 12 months, despite continued uncertainty surrounding our future relationship with the EU and something of a change of mood in the residential property market.

“Like us, many brokers are seeing opportunities in the challenges.”

Harley continued by saying that UTB had enjoyed a very successful first six months of the year as it continued to grow in several respects, including lending volumes and headcount.

“We now have more BDMs and originators than ever, introducing a variety of UTB products and services to brokers and customers across England, Scotland and Wales.

“The investment we’ve made in expanding the mortgage and bridging sales teams last year – and more recently the development finance team – is paying dividends.

“Our structured finance division has also had a busy first half year providing fast, flexible and dependable funding solutions for more complex scenarios and we continue to invest in technology to help us maintain our award-winning service standards and increase our lending across the bank.

“To underline our commitment to supporting brokers looking to grow this year, we have invested more capital in UTB, which allows us to continue to provide stability, confidence and assurance to brokers that if they are looking to fund opportunities for their customers, our book is always open for good quality business.”

Source: Bridging and Commercial

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The growing popularity of bridging loans for investors

In the 10 years since the global financial crash of 2008, banks have sought to limit their exposure to real estate risk and are increasingly constrained by EU-led regulation detailing the levels of risk they can hold on their books.

However, as banks have sought to manage their risk, reducing the amounts they lend to property investors, alternative and specialist lenders have risen up in their place to meet the needs of those looking to take advantage of the steady increase in property prices seen in the UK.

More and more, investors are turning to specialist finance lenders who face a competitive lending market as low interest rates remain in place.

This trend has only been exacerbated by Brexit as the ongoing uncertainty around Britain’s exit from the EU leaves borrowers, banks and new lenders without a clear picture of the next few years.

In light of this, bridging loans are increasingly popular as a short-term solution for investors and a way for high-net-worth individuals to see a return on capital.

Although the recent rise of bridging loans is associated with specialist lenders, particularly in the commercial space offering non-FCA regulated loans, the product originated as an option for property buyers to bridge a gap between exchanging contracts and completion of a sale where you needed to purchase a property in the interim but did not have the capital.

Banks would offer short-dated loans against the property being purchased while at the same time offer a second loan against the property you were selling pending the sale of it. However, more recently the loans, although still predominantly short term, refer to products that are designed to meet more complex borrower requirements across different sectors within property.

The model is a short-term specialist solution usually offered on a term of one to 12 months. Non-regulated bridging loans can be used for a variety of purposes but it is important that the lender can track the purpose of the same. Generally, the first charge lending will be used to refinance existing debt or to release capital to assist with a purchase of property. If a loan is used to purchase a property that is to be lived in by the buyer, it falls under the regulation of the Financial Conduct Authority.

“As banks have taken a back seat on property, investment space has been created in the market for specialist lenders”

It is possible, however, to lend on a second-charge basis on a family home providing it is and can be proven to be for business purposes. This could be to release monies to pay a company tax bill or to release cash towards purchasing a new buy-to-let property to add to an existing portfolio.

ActivTrades entered the bridging loan and specialist lending market this year using our own funds to offer unregulated loans of between £250,000 and £5m. The company offers loans across the UK from 0.49% a month with terms of up to 18 months, although other term loans may be considered on an exception basis.

As banks have taken a back seat on property, investment space has been created in the market for specialist lenders. Offering bridging loans has become a way for capital holders to see a return on their money while interest rates remain low following the global financial crash and the rebuilding of balance sheets. As such, the attraction of specialist lending is that it is not as expensive as the market perceives it to be.

Specialist lenders such as ActivTrades have opted to either lend money themselves and accept a lesser return or team up with a third-party funder such as a hedge fund. This second group of lenders must offer loans at a higher rate in order to cover the charge from their funder, which is likely to be around 7%, meaning they charge a higher interest of around 10% or 11% in order to make a return. For ActivTrades, which loans its own money, borrowers can expect rates as low as 6% per year.

However, this model is increasingly under pressure as the market becomes more competitive. Yet even with increasing competition between specialist lenders, the speed at which they can approve loans, even on multi-faceted financings, distinguishes them from traditional bank lenders.

Some broker specialist lenders such as ActivTrades are able to review the requirements for a loan and make a theoretical offer in as little as a two hours. In contrast, banks must run a more stringent approval process brought in after the global financial crash, while having to increase the capital they hold to meet any future potential commitments in line with new capital requirements.

Risky business

Of course, specialist lending still involves risk and as lenders continue to drive down prices, and we have seen the property market flatten out over the past year after a period of sustained growth, there is a concern that increased competition is leading to the rise of riskier loans. New entrants to the market are adopting more aggressive stances, taking on higher loan-to-value ratios, backed by challenger banks, hedge funds, family offices and investors. There is a fear that if an alternative lender were to collapse, third-party funders would withdraw their capital, leaving the market without liquidity.

We have also seen the emergence of peer-to-peer lending, which basically offers the consumer the opportunity to invest in property transactions with a specified sum of money with the attraction of securing a much higher return on their savings than they can get on deposit accounts. A downturn in the property market could create serious difficulties in this model.

Over the past 18 months, the rise of specialist lenders in the UK has been further spurred by Brexit. Lending has become cheaper as the Bank of England has kept interest rates low due to fears of a downturn after we leave the EU.

Meanwhile, the uncertainty has meant the main European high-street and clearing banks, as well as newer challenger banks, must make sure their balance sheets can cover any downturn. As a result, the number of specialist lenders entering the market has risen substantially in the past 12 months.

Furthermore, despite the fears of an instant market impact in the immediate aftermath of the vote, there is still active interest in buying and selling property in the UK as investors look for a home for their capital until there is clarity on what Brexit Britain will look like. If the most pessimistic predictions come true, households will be £1,200 worse off a year, the cost of importing goods will increase and many will see their job certainty reduce. All of this will affect the property market.

The retreat of the big banks in Europe over the past 10 years is unlikely to be reversed and many of them are considering moving their operations abroad and continuing to downsize their businesses in the UK. And while Brexit may exacerbate the recent downward trend of the property market, there are always those who will see opportunity before prices rise again.

It is a fact that the need for bridging and specialist lending flourishes in both a bull and a bear property market, but it would be likely to lead to overexposed lenders having their lines of credit reduced or even withdrawn, which would slim down the growing number of lenders. ActivTrades is perfectly poised as we are not reliant upon funding or lines of credit and, combined with the wealth of property lending experience, are here to stay.

Source: Property Week

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Guide to Bridging Loans

In the world of property development bridging loans are often an extremely useful method of obtaining short term finance in order to either secure a property or refurbish with the intention of adding value. Traditionally bridging loans can attract interest of up to 20% (or even higher) depending upon the type of security offered, type of project, size of the loan and the loan to value ratio (LTV). On the surface the interest rate may seem extremely high but the key is how this money is used and the return it creates.

REFURBISHMENTS, RENOVATIONS AND REDEVELOPMENTS

The easiest way to show how bridging loans can assist with refurbishments, renovations and redevelopments is to give you an example.

Property acquired for £100,000 in cash

In this example a property is acquired for £100,000 with the idea of refurbishing, renovating or redeveloping. The investor takes out a £50,000 bridging loan with an interest rate of 20% (equating to 1.67% per month) for a period of 6 months. The idea is that the £50,000 investment used to fund refurbishments, renovations or redevelopment will add an additional £100,000 to the value of the property resulting in the net gain shown below:

Six monthly interest payments at 1.67% per month = £5010
Typical lender’s fee at 2% = £1000
Typical broker’s fee at 1% = £500

Therefore, at the end of the six-month period the £50,000 will be repaid having attracted interest charges of £5010 and additional charges of £1500. Depending upon the nature of the project there may also be additional legal charges.

However, in theory we now have a property worth £200,000 which cost:

Original purchase price £100,000
Bridging loan £50,000
Bridging loan interest plus expenses £6510

Total expenditure £156,510

MORTGAGING AT A HIGHER VALUE

It is now possible for the investor to take out a traditional long-term mortgage, at lower interest rates, on the new property value of £200,000. The funds raised on the higher value can be used to pay off the bridging loan where in simple terms a £56,510 investment has created £100,000 in enhanced property value.

SECURITY

All bridging loans will require some kind of security which is traditionally a property owned by the investor. This ensures that in the event of financial problems in the future the bridging loan can be paid off by disposing of the secured asset. As an investor is obliged to use one of their own/company assets as security against the bridging loan this ensures that they have the strongest incentive to fulfil their financial obligations.

BRIDGING LOAN CHARGES

As we touched on above, bridging loan charges can add a significant amount to any bridging finance and this is something that investors need to be aware of. In recent times we have seen challenges to the traditional bridging loan market in the shape of crowdfunding bridging loan operations which effectively link investors directly with borrowers. Some of the benefits of crowdfunding bridging loans include:

• Reduced additional expenses with specific focus on crowdfunding bridging loans in theory attracting increased volumes.
• Reduced operating expenses and third-party commissions have led to a fall in traditional bridging loan interest rates. In simple terms, crowdfunding reduces the layers of bureaucracy.
• More attractive repayment options with many crowdfunding deals offering early repayment with no additional charges.

Crowdfunding bridging loan companies still require the same level of security as more traditional bridging loan companies. However, they take full advantage of the online market thereby reducing their own overheads leading to reduced charges for customers. As we have seen with private loans, business loans and property development finance, crowdfunding is putting significant pressure on more traditional rates of interest.

Source: Property Forum