Bridging has had a rollercoaster year. From the implementation of punitive Stamp Duty changes in April, to cuts to landlord tax relief starting from next April and the inevitable tightening of underwriting requirements announced in the summer – and then there was Brexit.
They all had an effect on bridging in one way or another. Not least, because bridging is still tied heavily to the property market, which was directly impacted by all those changes.
Nevertheless, lending held stable. According to the Association of Short Term Lenders (ASTL) the total value of loans on the books of its members (which are thought to represent about two-thirds of the market) was up 15.2% year-on-year in September. The value of loans written in the year to September was up 14.6%, compared to the previous year.
However, not all was good in the bridging sector. ASTL figures also showed the value of loans written in Q3 was down 4% on Q3 last year; and down 17.4% on the quarter ending in June.
ASTL chief executive Benson Hersch said he was optimistic but cautioned difficult times were ahead, despite many in the industry seeming to think otherwise. In July brokers told Mortgage Solutions’ sister title Specialist Lending it was very much “business as usual” and that any disruption to bridging following Brexit was a “non-event”.
“Anecdotal feedback from members in respect of Q4 remains positive, but whilst many are positive about their firm’s performance, the market is definitely showing signs of becoming more difficult,” Hersch said in November when ASTL’s Q3 figures were presented. He added he believes the industry will not reach the £3bn in loans written by year end that many had predicted last year.
So what lies ahead for bridging?
Hersch said although Brexit had evidently caused a drop in business in Q3 due to uncertainty about the economic situation, consumer landlord tax relief changes would have a more long-lasting effect on the market. “This will be partially counteracted by putting property into companies, but will also discourage some amateur investors,” he said.
But, perhaps more significantly, the bridging market was becoming more competitive, both with existing players looking to increase their business and new lenders coming to market. Options such as crowdfunding platforms and banking licenses will enable lenders to push rates lower, allowing more firms to become price-competitive, Hersch explained.
This was making it a more difficult market for brokers. “Brokers will need to be aware of what various lenders have to offer, as price is not the sole determinant in the choice of lender. Each case needs to be individually assessed in order to secure the desired outcome for the customer,” he said.
No more one-size-fits-all
Bridging Finance Solutions managing director Steve Barber agreed, while heralding the end of the “one-size-fits-all” bridging market.
He explained the recent raft of regulatory changes had made it more costly for firms to operate, which will lead to some consolidation and, eventually, a more specialist market, he said. What’s more, the property market is by nature geographically specialist, he added.
Barber said: “We will see a number of smaller lenders drop out or consolidate because of the higher administrative costs. At the moment bridging companies are one size fits all. As we see the sector mature, I see that more bridging companies will fall into individual niches, similarly to what happened to mortgages in the early nineties.
“This will include specialists in things like property type, area, deal size and risk profile of the borrower.”
What does it mean for brokers? “From a broker’s perspective, the good brokers will know which deal hits which lender’s sweet spot,” Barber said.