LDNfinance director Chris Oatway explains how he sees the market developing and what it means for brokers.
Why do you think clients are increasingly opting for refinancing instead of property sale?
The whole market has seen a slowdown in the length of time any transaction goes through at each stage of the process which includes the planning, finance, construction and sales. Though the timeframes have increased, the bridging market is still thriving, with many lenders introducing innovative products to the market. This has enabled many more new funding opportunities which previously were not available which has led to an increase in successful completions. With the wide variety in the types of bridging products now on offer, the variations have contributed to the increased need to refinance. Bridging funders are offering much wider range of products and some of these products have less certainty of a specific exit date. An example of this is when a bridging loan is offered on a development opportunity at pre-planning stage, we can make assumptions for the estimated time the planning will go through but this will need a large contingency built in.
We have also seen a change of strategy by developers who have added value through construction on a property and prefer to hold the asset and receive a strong rental yield rather than sell, which is due to the tax and slow sales market.
Is it affecting how you do deals?
In all cases, the exit period should be analysed in detail and the type of lender recommended needs to be suitable. Suitability could depend on the level of certainty of repayment by a specific date and if the client is able to either offer extensions or has the opportunity to switch to a longer-term product at a lower rate. It is important to focus on the long-term plan for the client and not solely on what is best for them within the initial bridging term.
Are you finding that more people are hitting their default rates when it comes to the end of a mortgage?
There are many lenders out there who have high default rates which are set in order to ensure payment is made on time, but more often than not the lenders are happy to work closely with the client, understand their position and make a judgement call as to whether default interest should be applied or an extension offered. The role of the broker is very important when sourcing a suitable lender for a client as some situations will require a more flexible stance and the deep relationship and understanding we have with our clients ensures we can facilitate these conversations if it came to it.
How is that affecting clients?
Default interest only impacts a very small percentage of our clients due to the level of interaction we continue to have with a lender and a client post completion of the loan. When both sides are kept well informed of the progress in the transaction it is much easier to find a solution that works for all parties.
Overall, what other trends are driving the bridging industry?
The last two years has been very exciting in the bridging space and we have never been more blessed to have so many quality lenders who cover such a range of niche areas. This blessing has become a double edge sword, as we are now in a position where there are too many new entrants that are offering the same product and are not adding any specific value to the market.
Our biggest fear is lenders making the wrong underwriting decisions due to pressure to deploy funds which can result in loans going into default or being repossessed.
Looking forward, the future is very bright for the bridging industry which has the potential to excel due to advances in new technology, but most importantly, due to experienced business leaders driving the funding market forward.