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Bridging loans grow in popularity amongst property investors

Bridging loans have become increasingly popular amongst property investors keen to expand their portfolios, new data has revealed.

The latest ‘Bridging Trends’ report revealed for the second consecutive quarter, this type of finance was most commonly used to purchase investment property.

According to the data it contributed to 25% of all lending during Q2 2019, up from 22% in the first quarter of the year.

According to the businesses compiling the data, bridging finance was being used by property investors who needed to move swiftly to capitalise on opportunities while prices were low.

Kit Thompson, director of short term lending and development at Brightstar Financial, said: “There continue to be opportunities for property investors to grow and diversify their portfolio and bridging finance provides a fast and flexible form of funding that enables them to leverage their capital and make the most of these opportunities.

“This is a trend we expect to see continuing well into the future.”

Other uses for bridging

According to the report, a traditional chain break was the second most popular use for bridging finance in the second quarter – this contributed to 18% of lending.

Borrowers were also using bridging loans for business purposes – this area of lending went up from 12% in the first quarter to 18% in Q2.

Dale Jannels, MD, at impact Specialist Finance, said: “I’m not surprised that chain break finance was the second most popular reason for obtaining bridging finance in the last quarter.

“We’re in uncertain times and this uncertainty transfers into property transactions also.

“Customers are also being gazumped and looking for short-term finance assistance to speed up the purchase of their dream property.  Add in the complexity of many property transactions and the high-street lender will say no, yet short-term finance might get them over the initial line.”

Impact Specialist Finance and Brighstar Financial are among a number of businesses which provide figures for the Bridging Trends report. The others are MT Finance, Clever Lending, Complete FS, Enness, Positive Lending, Pure Commercial Finance, Y3S, and UK Property Finance.

Lending figures

According to the report bridging growth stabilised in the second quarter, with bridging loan volume transacted by contributors hitting £184.82 million, a £500,000 decrease on the previous quarter (£185.32m).

Average LTV levels increased by 1.55% in the second quarter to 52.85%. The average monthly interest rate in Q2 was 0.79%, representing an increase of 0.05% on the previous quarter.

The number of regulated loans transacted by Bridging Trends contributors decreased from 38.3% in Q1 2019 to 37.5% in Q2 2019.

Second charge loan transactions, meanwhile, saw a slight increase in Q2, up from 18.3% in the previous quarter, to 18.7%.

The average term of a bridging loan remained at 12 months while the typical completion time on a bridging loan application in the second quarter increased by four days to 44.

Gareth Lewis, commercial director at MT Finance said: “Now that Boris Johnson has been announced as the new PM and has made Brexit top of his to-do list, this should help give the market the certainty it needs.

“If the rumours of a stamp duty overhaul are true, we expect the change to ease the pressures of regulation and excessive taxation on UK property investors. It will be interesting to see what happens over the coming months, but hopefully the sector can look forward to buoyant growth.”

By Kate Saines

Source: Mortgage Finance Gazette

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Bridging lenders warned of the risks of cutting costs

A law firm is warning bridging lenders of the dangers of procuring legal or surveying services on the basis of price alone, after it emerged many were compromising on due diligence to cut costs.

The alert comes following a study by Brightstone Law, in which it identified a trend where new lenders in the market were seeking to drive down fees by procuring professionals based simply on price.

The law firm said while this might work commercially, on a superficial level it could potentially be damaging to lenders further down the loan journey.

Indeed, it warned a law firm or surveyor employed simply on price might not have the right knowledge, skills and experiences to handle issues and complications which might arise in short-term loans.

And it raised concerns if one of these firms were asked to provide less than a comprehensive service, a so-called lite version, which was appropriately priced, it could end up being delivered by a less senior staff member.

Jonathan Newman, senior partner at Brightstone Law said: “For the first time in all my years of practice, too many to mention, my firm is turning away new custom. The reason is not lack of capacity. Far from it. The teams and practice continue to grow to meet demand.

“Many of these new lenders don’t have the benefit of past experience, or may have erased from their memories, the hard lessons taught in the last recession. These potential new clients appear to have a fixation on price and an appetite for the dilution of service requirements – professional services lite.”

Bridging market evolution
The bridging market – along with the accompanying legislation and regulation – has evolved over the past few years, which Brightstone Law said had led to the creation of more complex challenges.

Meanwhile, the responsibility of firms to deal with their own regulatory issues such as anti-money laundering, GDPR and cybercrime created additional layers of red tape.

This, said Brightstone Law, meant more sophisticated and reliable support was required – but this came at a cost.

Newman added: “In today’s market, these considerations should not outweigh a requirement for the right professional resource, to deliver the right professional job, comprehensively and thoroughly. I hear much about lenders and this risk curve – but those discussions centre on riskier lending, not on watered down, professional relationships.

“More now than ever before, lenders need the right professional partners to protect them, in a market where the pressure is to be flexible and commercial; where the classes of lending are trickier; and where levels of default and areas of dispute remain more common, than in the mainstream mortgage market.

“Lenders need to balance their appetite for greater distribution share, with minimising risk, not by indirectly and unconsciously increasing it.”

By Kate Saines

Source: Mortgage Finance Gazette

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Surge in new lenders entering the bridging market

There’s been a surge of short-term lenders entering the market over the last 12 months, up by 50% on 2017, Brightone Law has found. 

Short-term lending transactions are also up 15% year-on-year.

Recent figures from the Association of Short-Term Lenders (ASTL) also show that bridging lending amongst its members rose by 15% in 2018.  The value of applications have also increased, up by 13.4% to nearly £21.5bn and total loan books increased by 3.6%.

Jonathan Newman, (pictured) senior partner at Brightstone Law, said: “Despite Brexit and slowing house prices, the industry has remained resilient.

“The current economic and property market conditions do not seem to have adversely affected transactional volumes, or the appetites of lenders to fund over the market as a whole.

“Whilst some lenders have applied greater caution in underwriting, others have seized the opportunity to gain a foothold.

“Short-term commercial lending is regarded as the last area of unregulated lending, and therefore relatively quick and easy to set up to lend and open to all.

“With the current climate amongst institutional lenders remaining cool and processes viewed as tiresome, labour intensive and unsatisfactory, significant volumes of finance are being redirected into the short-term lending space.”

Newman added: “We are also seeing a loosening of lending criteria and increased flexibility from new lenders entering the market. These new entrants are driven, passionate and have a willingness to adapt and innovate.  They will disrupt the market, just like the first wave of challengers did 10 years ago.

“However, what is deeply concerning is that some of these new lenders lack experience and so have the potential of being exposed to poorly non-performing customers, or unsuitable security.

“Many of these new players are unable to identify future problems and may not  have the personal  know-how, gained from experience, to deal with problem issues in an effective and sensible way.

“However, they can reduce some of those risks by tapping into the experience of professional partners for support.”

Newman said that selection of key professional partners is all-important to securing a successful start.

He said: “Cost is a factor in that selection process but should not be the sole one.Hence selection of key partners is vital.

“Valuers with longstanding experience of market volatility, but with particular experience of the chosen asset class; intermediaries that introduce, but who are active in the wider finance market, and who understand the borrower and maintain the relationship to contribute and participate in the exit too; solicitors who have the technical competence and process to transact the property side competently and securely, but with transactional  experience, knowing what can and sometimes does go wrong further down the timeline, and how to deal with that; solicitors that do not just identify issues but are capable of offering solutions.

“Brightstone Law has a well-established reputation for short term finance transactions and recovery I take great pride from the longevity of our lender client relationships.

“So many of our clients were once those disruptor new boys on the block and now, are established, key players, leading brands and the benchmark for new entrants. To have played a role in their growth and success is truly satisfying from our perspective.”

Source: Mortgage Introducer

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Bridging market grew by 15% in 2018

Members of the Association of Short-Term Lenders (ASTL) wrote more than £4bn of bridging loans in 2018, representing an increase of 14.8% on 2017.

Figures compiled by the ASTL’s auditors from its bridging lender members for the fourth quarter of last year show an increase in the value of loans completed, outstanding loan books and applications in 2018 from the year before.

Benson Hersch, chief executive of the ASTL, said: “Our latest data survey shows continued growth in the bridging sector, with the value of loans completed in 2018 up by nearly 15% on 2017, the value of applications growing by more than 13% and the value of outstanding loan books also higher than the previous year.

“These results show that, in an uncertain economic environment, our members are continuing to provide useful, flexible finance for a whole range of purposes, and they are doing so whilst maintaining a commitment to high standards of underwriting.

“This is very encouraging and indicates a sustainable sector that is built on robust foundations.”

During this period, the value of applications increased by 13.4% to nearly £21.5bn and total loan books increased by 3.6%.

The value of loans completed for the quarter ending 31 December 2018 increased by 13.5% on the previous quarter and the value of applications increased by 0.3%, although the value of outstanding loan books decreased by 7.1% during this period.

Source: Mortgage Introducer

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Industry calls for dedicated bridging qualification

Bridging experts have called for the introduction of a bridging qualification to improve reputation, education and self-regulation across the industry.

Brian West, director of Central Bridging, who sits on the board of the ASTL (Association of Short Term Lenders), namedropped the old FISA (Finance Industry Standards Association) qualification for secured loans, which he said drove up standards and confidence.

He said: “I regularly push for examinations and training. Pretty much everybody, every underwriter within the main brokerages took the old FISA qualification and got their certificate.

“The bridging industry should be more aspirational. Why don’t we have a bridging foundation course?

“Let’s pull together the ASTL, NACFB and FIBA and some of the bigger lenders. If Brightstar put all its staff through it then Positive would follow suit as would every brokerage out there.

“With regulators you have to be seen to be doing the best you can to self-regulate, so it’s better if the FCA looks at an industry where the main trade federations and bodies are pulling together to produce a bridging foundation examination, even if it’s only a one or two day course to get a basic foundation in bridging rather than seeing an industry doing nothing.

“There are plenty of lenders and organisations that would get actively involved and would be prepared to pay and help.”

Rob Jupp, chief executive of Brightstar, has called for a bridging qualification before and is surprised one hasn’t yet been introduced.

He said: “The short-term lending market has grown significantly in recent years and lenders, distributors and brokers have all worked hard to raise standards and make bridging finance a more accessible solution for thousands of customers.

“But short-term mortgages are a distinct product that come with their own considerations and I am staggered we have still not introduced a qualification that can help brokers to demonstrate their understanding of the sector.

“We worked hard to get this across the line when I was chairman of the AOBP and we need to continue to continue that work to help continue to raise standards in our industry.”

Damien Druce, director at Assetz Capital, agreed, emphasising it should be driven by the industry, not regulators.

He said: “There’s definitely room for this but it should be driven by the industry rather than the Institute for Financial Services or the FCA.

“If you can get all the trade bodies in a forum with some key players, brokers and lenders, you can probably come up with some kind of qualification that’s probably not as formal as a CeMAP but has that practical side to it.

“The biggest benefit to this is the reputational enhancements to the bridging market because there’s still probably a little stigma attached to it, although it’s nowhere near as it was a long time ago. It’s improved massively.”

However Mathew Tooth, chief commercial officer at LendInvest, was against the idea of an industry wide qualification, favouring an on-board course at individual organisations instead.

He said: “It’s up to each to decide how they work and what they invest in. I think it should be an on-board course.

“The notion of a full qualification with an exam at the end where bridging and development is so interlinked and the syllabus would expand, wouldn’t serve a great purpose but some kind of on-board course lasting a couple of days for different types of stakeholder, for someone starting at a brokerage, someone starting at a lender, would be really good.

“So I’m for on-board training but not an industry wide qualification at this stage.”

Source: Mortgage Introducer

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Could further rate rises affect the bridging market?

After almost a decade with static, low rate environment, November 2017 saw the first rate rise in 11 years. There was much talk at the time that it could be followed by several more. Then nothing until last month, where a 0.25% rise saw the bank rate hit 0.75%, the highest it has been since 2009.

The Bank of England has indicated that it will be followed with at least one more rise before tFhe end of the year, maybe two. So, we are finally seeing a shift to a rate rise environment, a bit of shock after the static situation we have all been familiar with for so long.

November’s rise – the first many borrowers will have ever seen – coupled with this latest rise and the fact there is still uncertainty over Brexit, means we are in uncharted territory.

The one thing we do know, is that rates are rising, but how far and by how much remains unknown. Another unknown is how these recent and potential rate rises will affect the bridging market.

Generally speaking, while rate rises can affect the short-term lending market, it is less rate sensitive than the mainstream lending market. This is down to two main reasons. Firstly, due to their short-term nature, the rates of a bridging loan will generally not rise during the loan term, and secondly, because bridging lenders are funded differently from mainstream lenders.

Some bridging lenders are reliant on external funding, while others like Hope Capital, are principal lenders, which means they are privately funded, and therefore not directly affected by BoE rate rises.

In fact, as bridging becomes more accepted as a viable alternative to high street lenders, there is more competition in the market which has actually forced rates down. However, rates do vary quite widely between lenders because cases are taken on an individual basis, so rates are agreed depending on a number of factors including the speed at which the borrower needs to loan in place, how flexible the lender needs to be and the risk involved.

The main effect of rate rises on the bridging market, therefore, is exit routes. Borrowers who are looking to refinance as their exit route will be affected by higher rates on the longer-term finance deals that they go onto after the bridging loan. Therefore, bridging lenders and brokers need to be aware that if rates rise, it may affect the borrowers’ exit strategy and therefore their ability to repay the loan, which may need to be taken into account when assessing the risk.

Even if selling the property is the customer’s exit strategy, this still may be affected by rising rates because higher rates tend to slow property price growth.

However, assuming rates don’t rise significantly, I think the impact of the recent rises on the bridging industry to be fairly minimal. At Hope Capital, thanks to our position as a principal lender, we will continue to look at every case on an individual basis, whether there is a rate rise or not.

Source: Mortgage Introducer

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Bridging completions rise by nearly 30%

Annual bridging completions are now close to £3.8bn after rising by 29.9% from Q4 2017 to Q1 2018, data from the Association of Short Term Lenders has found.

The value of loans written in the first quarter of 2018 increased by 32.5% compared to the same quarter last year.

Payam Azadi, director at Niche Advice, said: “It shows bridging is here to stay, is growing and will just continue to grow.

“Any brokers not within the sector should certainly be looking at it more closely and aligning themselves with experts within that market. A good place to start is speaking to some of the packagers and master brokers experts.”

Total loan books are continuing to climb, with a rise of 13.1% compared to Q4 2017. Compared to the end of Q1 2017, the value of loan books rose by 35.6%, to £4.2bn.

Benson Hersch, chief executive of the ASTL, said: “Our figures highlight the fact that the bridging finance industry is in good shape and is ready and willing to meet the challenges and opportunities of today’s market.

“The bridging sector is now a well-established part of the property finance market and, barring any black swans, should continue to grow.”

The pace of increases in applications reversed recent declines and increased by 28.9% compared to a decrease of 11% in Q4 2017. On an annual basis, applications are up by 23.2%, making up a total of £19.7bn.

Although applications do tend to be unreliable indicators and are dependent on how many lenders are offered the same deals, this is still a staggeringly large figure.

These figures are taken from the responses from ASTL members, which include most of the key lenders in the bridging market.

Source: Mortgage Introducer

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Bridging market: Six predictions for 2018

The bridging market enjoyed a solid performance last year, after achieving gross annual lending of £4.7bn in Q3 2017, according to a recent study.

The West One Bridging Index report found that gross annualised lending increased from £4.3bn in June to exceed the peak of 2016’s pre-EU referendum high of £4.4bn, with the figure up 10% on the same period in 2016.

What do we expect to see from the bridging market in 2018?

Richard Tugwell, director at Together, said: “The Intermediary Mortgage Lenders Association (IMLA) described in its October white paper a ‘rebirth’ for the specialist lending market, following its impressive growth, particularly in the bridging finance sector.

“We fully expect this situation to continue throughout 2018, as high street finance providers shuffle their propositions, meaning an even greater number of borrowers will be unable to access the short-term funding they need.

“This growing demand will provide greater opportunities for specialist lenders like Together to highlight a more tailored service – relying on personal decisions, rather than a computerised approach – to deliver the best outcome for the customer.

“In 2018, we will be forging even stronger relationships with brokers so that – as rates start to move and customers’ deals come to an end – we will be able to help even more who are looking for bridging finance, but who may not fit mainstream criteria.”

Paresh Raja, CEO at Market Financial Solutions, believed that 2018 represented a significant opportunity for bridging to further establish itself as an attractive funding option.

“As clarification is obtained as to what Brexit will mean for the UK, it is foreseeable that greater confidence will return to investors.

“Subsequently, as 2018 progresses, the housing industry could once again return to more substantial patterns of growth, which may spark a rise in real estate investment [and], therefore, bridging demand.

“Apart from the South East and London areas, demand for bridging will also rise in other cities such as Manchester, Liverpool, Leeds and Birmingham, which continued to perform extremely well in 2017 and property investors will continue to tap into this sustainable growth.”

Gavin Diamond, commercial director of bridging at United Trust Bank (UTB), added: “The bridging market continues to go from strength to strength, with UTB seeing a record number of cases in 2017.

“2018 is already off to a busy start and there’s nothing to suggest there will be any let up in activity in the short-to-medium term at least.”

Jonathan Sealey, CEO at Hope Capital, believed that flexibility would be key for bridging this year and there was no room in the market for the ‘one-size-fits-all’ approach.

“Lenders need to be flexible and treat every borrower in accordance with their individual needs.

“The prospects for lenders from developers seeking finance will increase as the government moves on its plans to get the country building.

“The land that has been sitting waiting for development will have to [be] built upon, which means developers may need funding sooner than they might have initially thought.

“Short-term finance could come into its own to give developers room to move from one project to another.

“We saw an increase in applications at the end of 2017 for loans for renovation and refurbishment.

“This is a trend that I can see continuing this year as more people – especially landlords – look to improve their current position and increase the value of their existing properties.”

Narinder Khattoare, CEO at Kuflink Bridging, commented: “The bridging market is coming off a hugely successful 2017 and pipeline business going into January is the best that we at Kuflink have ever seen.

“Certainly, industry figures from a variety of sources show the continuing growth of the sector and I expect that trend to continue in 2018.

“Development and refurbishment loans will be growth areas this year and with the news in the cabinet reshuffle that housing – and by extension the property market – is now represented at cabinet level, I am confident that the chancellor’s plan to make housebuilding a priority will actually bear fruit.

“This can only lead to greater opportunities for advisers with clients associated with the building trade over the next few years.”

Allegra Penny, relationship manager at Funding 365, also expected the bridging market to continue its growth in 2018.

“I predict continued growth in investment outside of London as stamp duty continues to bite, but I would imagine this would be at a slow rate.

“Now we have moved into the second phase of Brexit, there is still much uncertainty and until we know more, this will continue to have an adverse impact on the property market.

“Finally, moving into 2018, I think we will see continued innovation and competitive offerings within the industry and at Funding 365.”

Source: Bridging and Commercial

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Bridging sector grows in Q3

The UK’s bridging sector continued its healthy growth of 2017 with another strong quarter’s performance, yielding a new high of £4.7bn in the year to Q3, West One’s Bridging Index showed.

The latest edition of the quarterly report revealed that gross annualised lending increased from £4.3bn in June to exceed 2016’s pre-EU Referendum high of £4.4bn.

The bridging sector has recovered from the slump in the Q3 of 2016 that followed the referendum result.

Marie Grundy, sales director of West One, said: “2017 has proven to be a strong year for bridging finance, with a clear return to form after the post-Referendum turbulence this time last year.

“Seeing further robust new business performance in a quarter that includes the typically-quieter summer holiday period is very encouraging.

“The wider property and property finance markets have flattened against continued political uncertainty due to slow progress negotiating Brexit, and the prospect of interest base rate rises finally arriving.

“This new market high therefore reflects the underlying strength of bridging.

She added: “We believe there is still that slack in the market and expect that the bridging market will continue to this pattern of solid growth, despite some slowing in the housing market.

“With pockets of growth outside London and the South East, we anticipate seeing more of that growth regionally.”

Trends in the bridging market

The emergent trend in the first half of 2017 of smaller transaction sizes has continued through Q3.

Average loan sizes dipped under £600,000 compared to averages in excess of £900,000 at the same time last year.

There were less large transactions coming to market, reflecting the relatively depressed market for high-end properties with values over £1m, especially in London.

s performance figures from different sources pointed to more upbeat property markets in some regional hotspots such as the East Midlands or Greater Manchester, it seems property investors are focusing on deals in those regions, with typically smaller ticket sizes.

The regional picture

Between actual residential property and property finance data, and forward-looking expectations data, varying patterns emerge.

Nationwide and RICS found the wider South East of England has also become more subdued in price growth, with a markedly negative outlook.

But UK Finance’s regional mortgage data showed mortgage lending in the London region at 10% more than that of Q3 2016.

Data for house prices identify both East and West Midlands as hotspots for annual price growth, alongside the South West, where supply is highly constrained.

The wider South East region is still showing growth, albeit at a slowing rate.

Savills research identified Midlands locations like Birmingham City, Leicester-Nottingham and Northampton and pockets in Scotland like central Glasgow and the Galashiels area of Edinburgh commuter hinterland.

With central Manchester also shining a light for the North West of England, this indicates the opportunities that investors are starting to exploit, where they know the local market.

Taking forward-looking sentiment data into account, other regions came to the fore, suggesting further scope for agile investors to grasp emerging opportunities.

September’s RICS residential market survey of members pointed to likely buoyancy in the North West, Scotland and Wales, with positive Q3 sentiment across a range of measures from price expectations to new enquiries and listings. This suggested positive market conditions will continue in the East Midlands and South West.

Bridging interest rates

Interest rates in Q3 recovered slightly from Q2’s low of 0.96%, returning to just above 1% per month.

With Bank of England base rate changes widely expected for some months ahead of the 2nd November 0.25% announcement, it is likely that the market had already begun to factor this shift in.

The report predicted a further rise in bridging rates during Q4.

Danny Waters, chief executive of Enra Group, said: “The bridging sector has performed well during Q3, despite the backdrop of concern around the progress of Brexit negotiations, and economic indicators pointing to both a slower economy and to the interest rate rise that ultimately came in November.

“Whatever happens next, the industry must continue to adapt to conditions, and provide the diverse and flexible funding options that property professionals need, so they can take advantage of the changing, regional landscape that we are seeing develop.”

Source: Mortgage Introducer