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Bridging market showing encouraging signs of activity

The bridging market is showing encouraging signs of activity as investors look to add value or yield, according to the latest Bridging Market Bulletin from Shawbrook Bank.

The bulletin delivers a snapshot of the latest trends and outlook for the UK bridging finance market.

This optimistic picture is reinforced by recent state of the market data from the ASTL which showed bridging applications hit their highest ever level in Q3 2020, and completions rose by more than 40% as the market bounced back following the first lockdown.

In an analysis of the market, Shawbrook observed the trends driving demand which included a buoyant auction market, an uptick in heavy refurbishment projects and investors capitalising on the stamp duty holiday.

Emma Cox, sales director at Shawbrook Bank, said: “It’s been a difficult time for the property market, and of course the current landscape has left many facing challenges – especially within the bridging space, where some lenders had to halt business in this area for a period of time during the height of the pandemic.

“It is positive to see many of these lenders recently return to market, and as our report shows, to see that the housing market is moving again.

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“Whilst some of this activity in the bridging market will no doubt be down to the releasing of pent up demand – something that Rishi Sunak’s stamp-duty holiday will support further – we are also seeing an uptick in investors looking at alternative strategies to sure up investments.

“The use of bridging to carry out refurbishments and conversions, as well as to aid chain breaks due to elongated sales processes, is an essential funding option that can support lucrative investment opportunities.

“We recently announced revised pricing across our bridging range, with rates now starting at 0.5% for both regulated and unregulated products, in order to show our continued appetite to aid brokers in making the most of these opportunities.

“The bridging market has demonstrated remarkable resilience throughout this year and, as much as we may face more challenges towards the end of 2020 and into the early parts of 2021, we believe this adversity may create opportunities for investors, and brokers, which Shawbrook plans to continue to support as much as possible”.

By Jessica Nangle

Source: SFI

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ASTL: Bridging applications leap to record levels in Q3

Activity in the bridging market reached record levels in Q3 with completions rising by over 40% and applications hitting an all-time high, the Association of Short-Term Lenders (ASTL) has revealed.

The latest figures from its members show applications totalled £7.6 billion in Q3 2020, representing an increase of 39.1% over the previous quarter and an increase of 25.7% on the same period in 2019.

Completions in Q3 2020 were £680 million, which was an increase of 44.8% on Q2, although still down by 27.6% on the same period last year. This reflected the influence of the first national lockdown on the previous quarter’s originations activity, the ASTL said.

Loan books showed a small increase of 0.6% on the previous quarter and 5% on the same period last year – remaining at around £4.5 billion. While average LTVs increased slightly since Q2, but continue to remain at sub-60%

The value of loans in default showed a small increase of 3.3% over Q2 2020 but were 23.1% higher than the same period last year, as borrowers continued to feel the financial impact of the pandemic.

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Vic Jannels, CEO of the ASTL says: “The Q3 lending figures from the ASTL reflect feedback from the market demonstrating that this has been a hugely busy period for bridging lending.

“Applications over the quarter totalled £7.6 billion, which is the highest figure we have ever recorded. Completions also bounced back on the previous quarter but remain down on last year as an overhang of the first national lockdown.

“We’re unlikely to see this overhang again as the market remained open during the second lockdown – but we must still remain cautious about the future, as the road ahead remains full of economic uncertainty.

“That said, if the recent positive news about vaccines come to fruition and lenders continue to underwrite loans sensibly, whilst taking a proactive and collaborative approach to customers in default, then there is no reason why this quarter’s figures should not prove a strong foundation for a robust and sustainable recovery.”

Source: Mortgage Finance Gazette

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ASTL: Bridging market is open for business

The bridging market is still open for business but communication is key to help customers identify the best options for their borrowing situation, according to the Association of Short Term Lenders (ASTL).

Vic Jannels (pictured), CEO of the ASTL, said: “It’s at times like these when the resilience and innovation of the short-term lending sector comes to the fore.

“We have seen lenders introducing new technology and processes to ensure they are able to continue to deliver vital funds for customers, and even received new membership enquiries for the ASTL.

“At the same time, lenders have been working proactively to engage with their existing customers to identify the most appropriate course of action for their circumstances.

“There will certainly be some customers who are experiencing financial distress as a result of the COVID-19 crisis, and our immediate guidance for these customers is to speak to their lender as soon as possible, so that you can work together towards a solution.

“Notwithstanding the above, it is important for all borrowing customers to remember that they have a contractual responsibility in relation to the interest payments due, subject to the terms of the loan, and to redeem their loans at the appropriate time.

“Lenders will always be willing to have a conversation with their customers and look to be supportive whenever possible. The current pandemic, however, is no reason to simply ignore your obligations and stop making payments or refuse to communicate with your lender.

“Bridging lenders work tirelessly to engage with customers in genuine difficulty but they, in turn, have their investors and funders to consider and, in turn, do not want to be in breach of their commitments.

“So, our guidance for all customers is to talk immediately to your lender if you are experiencing financial distress. There are often sensible options and ways forward, but these can only be identified by working together.”

By Ryan Fowler

Source: Mortgage Introducer

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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