Steve Barber (pictured), managing director of Bridging Finance Solutions, said that a low interest rate environment has had the most significant impact on the bridging market in terms of increased liquidity, as investors with capital are actively seeking alternative opportunities other than bonds and equities.
“This has led to multiple new bridging companies entering the market seeking returns,” said Barber, adding that occupying just 1.3% of the mortgage market, the sector has plenty of room for growth.
“By definition, the investments are short term and as the recovery continues this liquidity may not always be available as other investment alternatives come into play and funding may leave the sector resulting in consolidation.”
However, he said that the industry is developing in a way that the mortgage industry did in the 80s and that individual firms are finding their own niche in a growing market.
“On the basis that the mortgage market is worth about £220bn and the bridging market just £3bn, it obviously has further to grow,” he said.
“In particular, we are seeing a stark differentiation in all aspects between bridging firms and short-term mortgage firms.”
Barber predicted changes to Stamp Duty and investment property tax relief will force further change.
“Stamp Duty increases and the investment property tax relief phased withdrawal from 2017 will undoubtedly cool the property investment market, but outside ISAs what alternative long-term investment strategies are available?
“Recent times have demonstrated the turbulence of equities and over a 15 to 20-year term, property will continue to provide for an attractive asset class. However, I expect to see a greater percentage of limited companies ‘refurbish and sell’ bridging loans as a result of the changes.”
He said the government’s mission to make room for the first-time buyer will take its toll on smaller investors who will no longer see the margins and returns once expected.
“Smaller investors may well drop out of the investment market but with low interest rates, wage growth outstripping inflation and government incentives, this will make way for first-time buyers which in itself makes for a healthy property market.”
He concluded that, as bridging moves from a niche product into the mainstream and becomes increasingly recognised by professional advisers as a solution for clients, a considerable change in the use of the product is expected.
“The classic use of fast investment property purchasing may well form a smaller percentage of a lender’s overall book, as the sector levels off, but there will always be a requirement for fast, entrepreneurial funding underwritten on each individual case’s merits.”