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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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A look back at the short term lending market for 2017

2017 was preceded by a long spell of huge growth and this year is no different, but it hasn’t been without a few bumps in the road. The sector suffered a short period where business levels dipped following the referendum, and again after the rate rise, but quickly bounced back on both occasions demonstrating its resilience and ability to adapt.

There have been many new entrants to the market, with a particular focus on the heavy refurb and development markets; this is largely down to the extension of permitted development rights. The rise in refurbishment lending could also be indicative of an increase in desire to improve existing properties rather than move, coupled with the lowest mortgage approval rate on new homes for over a year. Another reason for growth could be that mortgage delays continue to be the leading reason for the use of short term finance.

Overall, there has been a lot of liquidity in the market with fierce competition which has driven rates down even further. The lowest available rate is currently 0.44% pm and the most competitive we’ve ever seen.

Short Term Lending product of the year

This year, Interbay, part of One Savings Bank launched in to the short term lending market. Brightstar were fortunate enough to be selected to trial their product with a headline rate of 0.44% pm. This offers non-regulated clients the ability to benefit from the UK’s most competitive short term lending rates, starting at just 5.28% PA for loans up to 55% LTV.

The product can also be used for property requiring light refurbishment.

The LTV brackets are 0.44% up to 55% LTV, 0.54% up to 65% LTV, and 0.64% up to 75% LTV.

All LTV brackets carry a 2% fee with no exit fee or ERC.

Source: Financial Reporter

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Bridging loan volume dips in Q3

Bridging volumes fell by 4.9% in Q3 but remain some 2% higher than last year, data from Bridging Trends has shown.

The firms that contribute to Bridging Trends reported that gross lending had dropped to £142.75m

The split between first charge and second charge lending stood at 82% and 18% respectively indicating consistent investment in residential properties-to-let.

And Joshua Elash, director at MTF, said in regards to unregulated bridging continuing to dominate the landscape: “The implementation of the Prudential Regulatory Authority’s rules relating to the treatment of portfolio landlords means this upward trend is likely to continue for the foreseeable future.

“Increasingly larger number of professional property investors will consider bridging finance when purchasing a new property which they otherwise intend to refurbish and sell.”

Chris Whitney, head of specialist lending at Enness Private Clients, added: “I think when you keep in mind the fact that this was over the summer holiday, a drop of only about 5% in lending volumes compared to the last quarter is actually quite impressive.

“I was surprised the average interest rate hadn’t fallen further than it has. We have seen pricing under quite a bit of downward pressure as certain lenders fight to increase market share and protect what they already have from new entrants.”

Additionally the data found that mortgage delays were the most popular reason for taking a bridging loan and the average duration of a loan stood at 12 months.

Average LTV levels reached almost 50% with the average monthly interest rate across first and second charge lending decreasing to 0.82% from 0.84%.

Source: Mortgage Introducer