Bridging lending landscape expected to diversify as demand grows – SLS In Focus

The bridging market has been going from strength to strength, with bridging lending rises by nearly a third (28 per cent) since the start of the pandemic.

There have also been some new lenders and funding into the market with StreamBank gaining its banking licence earlier this year, Mint Property Finance securing multi-million pound facility from Aldermore and Spring Finance gaining a bridging funding line with Natwest.

We asked those in the bridging market what the current lending landscape is like and future expectations.

Current bridging landscape

Vic Jannels, chief executive of the Association of Short Term Lenders (ASTL), said that the bridging market had been “continually evolving” since its inception, and was “continuing to grow to meet a wide variety of customer needs and is doing so by maintaining high standards”.

He said that ASTL’s latest figures showed that bridging loan books had reached a new high of £6.1bn at the end of June and applications had risen by around 19 per cent on the prior quarter and completions rose by 17 per cent.

However, Jannels also said that the figures were based on ASTL members so the wider market could be even bigger, as there was some uncertainty in the market around the actual number of lenders.

Jannels explained that there were probably around 50 recognisable brands, but there could be 200 to 400 “invisible lenders” that were smaller, local and family-run operations. He said that ASTL was inviting those ‘invisible lenders’ to talk to the association, but few had done so. He added that he would keep trying as it was “important to truly understand the true size and quality of our sector”.

Benjamin Sabih, head of bridging and development finance at Finanze, said that the bridging lending sector was “currently highly competitive” with upwards of around 300 lenders in the market.

Sabih said that, as opposed to a couple of years ago, there was a “willingness to make a deal happen from the lenders part”, whereas during the pandemic loan to values dropped and lenders closed their books, so there was limited selection of products.

He noted: “This has improved significantly in the years since as lenders have introduced more competitive products in order to compete with each other for a client’s business.”

Chris Sykes, technical director at Private Finance, said there were hundreds of bridging lenders especially on the unregulated side and that the “landscape is fairly good right now”.

He added that it was “looking more and more appealing for many”, as residential and buy-to-let rates have increased and bridging offers increased flexibility.

“I think it is becoming increasingly appealing for traditional buy-to-let investors to diversify and try to make more instant lump sum profits rather than drawn-out long-term profits, with the profitability of buy-to-lets taking another hit with rates going up.

Bridging is a tool in an investor’s arsenal that can be used where cash isn’t available in the short term.

Lender propositions

Jannels said that there was a “huge amount of variety in bridging lending” for both regulated and non-regulated businesses.

“Bridging has moved on a long way from simply providing a solution for chain breaks. It can be used to put homebuyers in a strong purchasing position in a competitive property market, in auction purchases and property conversions and refurbishments.

“It’s also a popular source of business finance. Development exit bridging loans are proving particularly important for developers in the current environment of increased costs and delays.”

Sabih added that propositions were “slowly coming back to pre-2020 levels” but “were not quite there yet”.

“In all honesty, they may never return to what they were before. This is where the variety of products come into play as many lenders are coming out with new highly clever products that really focus on a client’s actual needs for their project as opposed to offering a generic one-size-fits-all deal. I think the variety will continue to expand and more innovative products will be created in line with demand,” he noted.

New entrants to the market expected

Sabih noted that there would always be more “boutique style lenders” that enter the market and increase competition, but he said that the main players would “continue to dominate the scene due to the sheer lending power they have”.

He did note that the increase in competition was “healthy for the sector” as it improved products and rates that lenders offer and encouraged inventiveness.

Sykes said that there “constantly” appeared to be new bridging lenders “attracted by the high returns available in the space”.

He continued: “I expect the demand for quirkier forms of finance to grow as we go into a more complex market, so I wouldn’t be surprised if some additional lenders enter the market.

“Some may withdraw from the market with their margins being squeezed by institutional lending rates though.”

Jannels said that the bridging sector was “incredibly dynamic, offering an opportunity to deliver real solutions-based lending in a market that is growing in demand, reputation and awareness”.

He continued that there would always be new entrants to the market, and it would “welcome those that are able to add value and provide additional choice for customers”.