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How long is the average bridging loan term?

Recent reports have revealed that the average bridging finance term is getting longer.

Why is this? And how long does it take to get a bridging loan?

The average bridging loan now lasts a year

According to a recent report by Bridging Trends, despite a bridge being ‘short-term finance’, the average bridging loan now has a duration of 12 months.

Traditionally, bridging finance was sold as ‘up to 12 months’, so these findings could indicate that lenders are taking greater advantage of the maximum terms available to them.

How long does it take to get a bridging loan?

The research also revealed that, in 2017, the average bridging finance loan took 43 days to complete. This was down from 45 days for the previous period.

It’s important to recognise this is just an average and completion times can vary greatly. Here at Pure Commercial Finance, we’re known for sourcing fast finance and have completed deals in mere days in the past.

Why are bridging loan terms increasing?

Greater competition

With bridging finance increasing in popularity, more and more lenders are entering the marketplace.

That means there is more competition and lenders are having to work harder to stand out from their competition. One such way of doing this is by offering longer terms of up to 48 months.

An uncertain property market

With Brexit looming, some areas of the country are feeling the effects of an uncertain future with the property market slowing slightly.

This means some properties are taking longer to sell and as a key component of any loan is to lend against a property that has a realistic exit, having an achievable time to secure this has resulted in some lenders extending terms to reflect this requirement. This in theory should prevent borrowers defaulting on their loans when their property fails to sell as quickly as they may have hoped.

More flexible specialist lending

It’s no secret that specialist lenders can be more accommodating than those on the high street.

These lenders are more likely to take the time to look at the individual circumstances of a case and bend their criteria in order to help the borrower wherever possible.

That means, if you are an experienced borrower with a large deposit and clear credit history, a lender may extend the parameters. The average bridging term is affected as a result.

Source: Bridging and Commercial

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Are UK bridging lenders eyeing US expansion?

The US market would appeal to many bridging lenders if they were to consider international expansion, a recent report uncovered.

The EY 2018 UK Bridging Market study revealed that while the primary route to expansion was geographically in the UK, the US market appealed to many bridging lenders due to being able to offer a similar product proposition and there being capacity to grow quickly.

In the US, bridging loans – or bridge loans – are sometimes referred to as hard money loans.

Hard money lenders tend to be regulated at a state level via the department of real estate and at least one person associated with hard money lending is said to need a valid real estate broker licence.

Additional licensing requirements may vary from state to state.

Why might the US appeal to UK bridging lenders?

“UK bridging lenders would naturally consider lending in the US market because there is a limit to the amount of capital that can be deployed in the UK and the US market is so huge, it’s natural to want to consider operating there,” explained Michael Dean, principal at Avamore Capital.

“The US is also very creditor-friendly compared to most of the rest of the developed world, much like England and Wales.”

Paul Riddell, head of marketing and communications at Lendy added: “The US bridging market is an attractive market for many UK-based lending businesses.

“We are a fast-growing platform so clearly we would not rule out expansion into new markets over the longer term, with the US being a good fit for our model.”

Rob Jupp, CEO at Brightstar, pointed out the opportunities left by the global economic crash.

“There are huge opportunities to make significant profit from property appreciation in the US and a real shortage of a short-term lending industry to facilitate this.

“It’s almost the perfect environment for UK lenders, if partnered correctly.”

Jack Coombs, director at Aspen Bridging
Jack Coombs, director at Aspen Bridging

However, Jack Coombs, director at Aspen Bridging, told B&C that while the US was interesting as it had few legal barriers and a similar language, it was “a bit obvious”.

“There are possibly more attractive opportunities in other yet less developed bridging markets while still within the OECD countries.”

What problems could UK bridging lenders face in the US?

“Because there is a lot of UK competition in a shrinking market, some lenders may perceive that with the US being a large market that there may be room for more,” pointed out Damien Druce, director and head of intermediary sales at Assetz Capital.

“Unfortunately, for most with this aspiration, there are established lenders in the US that investors would be more likely to back.”

Chris Whitney, senior broker at Enness Commercial, wasn’t convinced the US market was suffering from any shortage of short-term specialist debt providers.

“The UK has a more robust legal system, mature regulatory framework and excellent infrastructure, and we know people choose to come here to transact business for these reasons.

“We’ve seen many US- and Canadian-backed funds wanting to lend into our market because of this, but rarely the other way around.”

Adam Tyler, chairman of FIBA, said that while there had been some success for P2P lenders expanding into the US market, there were few independent UK bridging lenders with the resources to make the same entry at present.

“Having worked closely with my US counterparts in recent years, while there is familiarity in terminology and outlook, it would not only require a significant amount of research, but also some serious financial backing to help build a recognisable brand.

“A partnership with a US-based firm with existing distribution might be a better path.”

Ortus Secured Finance has entered new markets recently, including the Republic of Ireland, but ruled out an expansion into the US for the time being.

“A huge amount of research and due diligence is needed to sensibly enter a new market, along with a strong, local professional network,” said Jon Salisbury, managing director at Ortus.

“Therefore, an expansion into the US is not on our agenda at the moment.”

Michael explained that the US market was quite fragmented because the recovery of loans varied from state to state, with each having different rules.

“From what we’ve heard, foreclosure is very easy to achieve in California, whereas in New York state, Florida and New Jersey it’s much more difficult to achieve and can take a lot longer, so you need a lot of local-level knowledge to support your expansion plans.”

Mike Strange
Mike Strange, managing director at Funding 365

Mike Strange, managing director of Funding 365, added: “The US financial services market is exceptionally sophisticated and already has a comprehensive bridging offering.

“I think it is unlikely that a UK bridging company is going to be able to compete with US peers given the inherent barriers to entry that exist.

“The US market has always been viewed – across many industry sectors – as a market which can provide untold riches if conquered.

“The truth is, however, that the path to US market success is littered with the remains of companies which tried and went bankrupt trying to succeed there.”

Source: Bridging and Commercial