The tighter lending landscape means both residential and commercial borrowers are increasingly looking to bridging lenders, with the sector starting to lose its reputation as lending of last resort.
Bridging lenders come in many shapes and sizes, from the commercial arms of mainstream banks, to specialist lenders, private investors and individuals with cash to lend. As such, the number of bridging lenders operating in the UK is hard to pin down, but estimates suggest it could amount to as many as 200 unregulated and regulated lenders.
The shape of the market
Moneyfacts lists 21 bridging loan providers, who offer rates of between 0.75% to 1.5% + a month on unlimited loan sizes for terms of up to 24 months. Many of the best known brands are listed as accepting adverse credit applications and some offer niche lending on security as diverse as public houses, care homes and farms.
The latest result from a Mortgage Solutions poll suggests our readership is split between serious converts to the bridging loans market and those who haven’t arranged any deals at all in the last 12 months.
Nearly a quarter of our readers (22%) have arranged 11 or more bridging loans for clients in the last 12 months and 15% say they have arranged between 1 – 10. However, a massive 64% say they haven’t arranged bridging finance in the last year suggesting the sector still has some bridge building of its own to do.
Michael White, managing director of Email Mortgages, says: “It’s very difficult to prove how much business is being done. But it can’t be a coincidence the bridging market has grown at the same time as the remortgaging market has disappeared.”
However, monthly pay rates of 1- 1.25% make bridging an unlikely candidate to replace the remortgaging market. Rob Jupp, managing director of packager Brightstar, said quite a lot of brokers are also under the misapprehension that bridging is the new specialist sub-prime market. It isn’t, he says, but it still has plenty to offer.
“Brokers just need to be educated on the fact this is a bona fide business stream and is keeping a lot of clients happy.”
Ray Boulger, senior technical manager at John Charcol, says the broker doesn’t do a huge amount of bridging, but it has done more since the credit crunch.
“We had a client with a buy-to-let portfolio who wanted a deal for two or three years worth £17m which went to a bridging lender. That’s not the sort of deal the private banks could do and was also fairly exceptional for us,” adds Boulger.
Duncan Kreeger, chairman of West One Loans said he thinks the rising calibre of lending opportunities from borrowers squeezed out of the mainstream market means lenders are more willing to compete harder on rates.
“Previously, bridging lenders were used when borrowers had exhausted all other options. Now people are capitalising on opportunities at auction, for example, or on other deals where speed is of the essence and they don’t want to miss out,” says Kreeger.
The market can be a tough one to navigate, says Jupp, if you are unfamiliar with the sector, with lenders specialising in particular niches. “As a packager, we understand when a lender is trying to chance its arm and charge a higher rate than it needs to. We can do battle for brokers on the rate and fee and try to get better terms than they can get anywhere else,” he says.
The regulatory hurdle
On 1 February 2011, Masthaven became the latest lender to become FSA regulated, which it said is a reaction the “changing regulatory environment.”
There is no clear regulatory timetable yet for the bridging industry, but many are convinced it will happen within the next two years, as simultaneously, the business case for becoming regulated is becoming increasingly clear.
Richard Deacon, sales and marketing director at Masthaven, said: “We wanted to be able to offer a one-size fits all package and often lend much lower LTV s on first-charge deals, which are unencumbered and really quite attractive. Regulation should also expand our access to funding,” he adds.
Business development manager at Tiuta, another regulated lender, Guy Garrard tells Mortgage Solutions its first-charge lending has jumped from 5% to 40% of its book since the start of 2010. (Click here to watch the video).
Boulger says whatever else people have to say about the market, it is one sector of the market where real competition is developing.
“In the fullness of time, some of the bridging lenders will metamorphose into mainstream lenders. Some are more likely than others to move in this direction,” he adds.
