Bridging lending rebounds to break £1bn in Q2
The figure was a 12 per cent bounce back after a downturn in the early part of 2019 which saw just £899m of completions.
The £1.004bn of new completions in Q2 was 4.1 per cent up on the same period in 2018.
Increases in lenders’ overall loan books were also prevalent in the ASTL figures.
It noted that bridging loan books grew to a record £4.62bn at the end of the second quarter, representing growth of 11.7 per cent compared to Q1 2019 and up 14.4 per cent on the same quarter last year.
Application volumes were more mixed with a record total of £22.13bn received in the 12 months to the end of June, representing a 9.7 per cent increase on the same period to June 2018.
However, applications dipped four per cent on the first quarter of the year to hit £5.69bn, although this was still 5.3 per cent more than in the same three months last year.
ASTL CEO Benson Hersch (pictured) was highly positive about the state of the market.
“The second quarter of this year has delivered some very strong results for bridging lending, with record values both for applications over a 12-month period and total outstanding loan books,” he said.
“In fact, nearly all measures were higher than last quarter and the same period in 2018.
“The wider political and economic environment remains uncertain and the challenge for the industry now is to continue this level of activity whilst maintaining high standards of underwriting and customer focus,” he added.
AMI warns bridging arrears rising as lenders ‘beefing up’ collections teams
Arrears and default interest rates have been hotly debated in the bridging market over the last few months and now the adviser trade body has made its concerns public.
In its quarterly update AMI was confident that lax lending standards would not be an issue in the residential market, but raised the issue of the short-term sector, where it said arrears have risen and lenders are preparing for that.
“AMI notes that the incidence of arrears on short-term finance loans funded by peer-to-peer and other bridging lenders has already risen,” it said.
“The number of borrowers falling behind on loan repayments, albeit in unregulated markets, is steadily climbing.
“Anecdotal evidence indicates that short-term lenders are beefing up collections departments in anticipation of further arrears; it may be that the longer term regulated market should consider its own readiness for rising arrears, particularly as the short-term sector usually leads the residential market where arrears and possessions are concerned,” AMI added.
Robust underwriting and risk
Last week in his regular column, Association of Short Term Lenders (ASTL) CEO Benson Hersch said “there is no place in the bridging market for excessive charges”.
The trade body has also previously warned that with the slowing property market it was taking borrowers longer to sell properties and repay loans, and that brokers need to do their homework on lenders.
In response to the AMI comments, Hersch told Specialist Lending Solutions: “It looks like arrears on short term loans are becoming more of an issue, as we had expected, and the recent demise of Lendy will cause many to speculate whether other lenders will be next.
“This is a timely reminder about the importance of robust underwriting and risk controls.
“Anyone can lend money, the art is being paid back – and so lenders need to make sure they have the appropriate skills and processes in place to ensure they are making the right lending decisions.”
Defaults should be last resort
Earlier this month Octane Capital hit out at other lenders for using high default interest rates and charges.
In a statement, Oblix Capital said it also supported moves to increase transparency, professionalism and the reputation of the industry.
However, it argued that lenders should always prioritise client engagement to find an alternative approach, with default rates only coming into force as a last resort, once all other options have been exhausted.
Oblix Capital sales director intermediary and network Andy Reid said: “As the end of the facility term approaches, we would much rather engage in discussion with the borrower to identify whether repayment of the facility is likely by the due date and, if not, we explore alternative options.
“If, for example, there is a viable, but slightly later exit plan in place, we could extend the existing facility without incurring any default charges.
“Alternatively, we could look to re-structure the loan, perhaps by moving to a different product.”
Spotlight on default rates – ASTL
FIBA announced that it would include lenders’ extension and default rates in its online lender directory following industry concerns about the transparency of these charges.
At the Association of Short Term Lenders (ASTL), one of our key objectives has always been to achieve greater transparency in the industry, and this is precisely why we amended our code of conduct for members as long ago as January 2017.
We did so to ensure all ASTL members that apply an alternative higher interest rate in certain circumstances, such as the default of a loan or in the case of term expiry, must make this clear and transparent in all of their documentation. This includes indicative or quotation terms, as well as in the actual loan documentation itself.
This approach is a best practice that is followed by all ASTL members, but there are lenders that are not members of the Association and we also have a responsibility to encourage those lenders to meet these minimum expected standards.
There is no place in the bridging market for excessive charges, but there is also no need for price regulation. Such intrusive regulation would put a stranglehold on innovation and be a backwards step.
In a free market, customers have the choice whether or not to pay a particular price. But they can only make this decision based on the information they are provided, and this is what the transparency of fees and charges is so important.
If we can develop a culture that encourages the clear labeling of all fees and charges from the outset, we will create an environment of self-regulation, where those lenders whose charges are excessive compared to the market, will simply not win business and so pricing will find an appropriate level.
Transparency is key, and when the spotlight falls onto default rates, lenders and intermediaries should be in a position where they have nothing to hide.
Lender funding: Brokers need to do their homework and be careful who they pick – Hersch
This is a big consideration for bridging lenders as it means that it can take borrowers longer to secure an exit and consequently the standard length of a bridging loan is now creeping up from nine months to 11 or even 12 months.
As lenders are tending to hold assets on their books for longer, they are taking a more rigorous approach assessing applications and the timeframe of a bridging process is lengthening.
It is currently the norm for a bridging loan to take between six and eight weeks to complete from application and it’s not unusual for an application to take months.
Longer applications, higher risks
It’s important that brokers understand this situation at the outset so they can manage the clients’ expectations, but also so they can mitigate for the risks presented by a longer application process.
The longer it takes for a case to progress from application through to completion, the more opportunity there is for circumstances to change.
We have seen cases recently where lenders have stopped lending on new business and have also failed to honour their pipeline.
This can be stressful and potentially expensive for borrowers and it puts brokers in a very difficult position.
Brokers must conduct their own due diligence
So, certainty of funding is an increasingly important consideration when it comes to choosing a lender.
The market is awash with choice, with many lenders offering attractive rates and criteria, but not every lender will have robust and consistent funding models.
Brokers need to do their homework and be careful about which lenders they pick – certainty is a key consideration for both them and their clients.
It reminds me of the utilities market, where competition has flourished, and consumers have been encouraged to switch provider in the hunt for the cheapest rates.
The problem is that not every provider has had a robust business model and some of these companies have folded, resulting in their customers losing out.
The pace of the bridging market is changing, to enable lenders to carry out more rigorous diligence on potential borrowers, and brokers should also carry out their own diligence and ensure they choose a lender they can trust to deliver clarity and certainty.
Benson Hersch steps down as CEO of the ASTL
Hersch will remain in the role until at least September to help the trade body identify and appoint a successor.
Executive committee member James Bloom praised Hersch’s commitment to the organisation and said he would be difficult to replace.
“On behalf of the directors, we would like to formally place on record our enormous thanks to Benson for his many years of hard work and dedication to the ASTL,” Bloom said.
“Finding his replacement will not be easy but the search will start in earnest. We look forward to the appointment of a new CEO to continue the positive momentum and growth of the ASTL.”
Pleasure and vocation
Hersch said it had been a pleasure and vocation over the past seven years to assist the ASTL in its growth and prosperity financially and in terms of membership and strength of profile.
“Unfortunately, nothing is forever and I feel that now is the time to hand over to someone who can continue the task,” he said.
“I will, of course, assist in any way my successor may require in order to ensure a smooth transition.
“I would like to take this opportunity to thank all board members, past and present; as well as all the members for their assistance in making the past seven years an extremely pleasant experience. I also want to thank our administrator, Kay Woolley, for her invaluable experience,” he added.
Four key steps for using competitive intelligence to improve your business – Hersch
This means you need to have the right approach to gathering and acting upon competitive intelligence.
Harvard Business Review describes competitive intelligence as a perspective on changing market conditions, helping you to identify risks and opportunities early enough to allow your business to adapt its strategy.
Competitive intelligence includes tracking your emerging and existing competitors, but this is just one element and the real focus should be on customers and continuing to meet their changing needs.
Do not forget your customers
A White Paper by Lexis Nexis on competitive intelligence provides a good example of how too much focus on the competition can be ultimately damaging.
In 2008, there were two daily newspapers in Denver, Colorado – Rocky Mountain News and Denver Post.
One year later, Rocky Mountain News announced its closure, ending the publication’s 150-year reign as the oldest daily in the state.
Following the demise of the newspaper it emerged that its editors often held back on publishing breaking news to its website for fear that the Denver Post would steal the story.
In reality, the fear that they might give their competitor an edge, only resulted in alienating readers who only saw that the News was consistently being scooped by the Post.
The Rocky Mountain News was more focused on its competitor than on its customers.
Here are four tips to help ensure that your business makes the most of competitive intelligence, to help it thrive in changing times:
Keep it current
Historical data is useful, but make sure you have access to timely information.
Trust your sources
Information is freely and widely available, but not all of it is correct. Make sure you trust your sources to be accurate.
Understand your markets
The world is becoming increasingly interconnected, so don’t be too narrow in your focus. Work to gain an understanding of adjacent markets as trends in these may impact your business before you realise.
Prepare for the unknown
The future is unknown for everyone, but you can prepare a plan with a comprehensive understanding of existing conditions. You also need to be prepared to drop any preconceptions if the future turns out to be very different to what you expect. This is as true of businesses as it is for sporting teams.
The importance of accurate and comprehensive competitive intelligence is one of the motivations behind our annual conference at the ASTL in November.
Knowledge is power, so in this environment it’s vital that you take every opportunity to build your own personal, professional and institutional knowledge.
Bridging lenders grow in confidence on economic outlook – ASTL
Over 57 per cent of respondents said they were confident about the long-term future for the UK economy compared to 37 per cent of those who were surveyed in March last year, according to research from the Association of Short Term Lenders (ASTL).
Three quarters of those surveyed said that they expect their business volumes to grow in the next six months, representing a small drop of three per cent on last year.
In future, there is more caution about the outlook for the overall bridging market, with nearly 29 per cent of respondents expecting it to shrink, compared to just under four per cent last March.
Further, lender expectations for property prices are gloomier still, with more than 70 per cent preparing for prices to decrease in the next six months.
Overall, positivity among members of the ASTL is up on this time last year and is higher than it has been since April 2016, which was before the EU referendum.
Benson Hersch, CEO at the ASTL (pictured), said that the level of confidence shared by members of the ASTL is reassuring.
He added: “This is not blind positivity as the survey reveals lenders are realistic in their expectations for house prices and the growth of the bridging market, but three quarters still expect their business volumes to grow in the next six months.
“This indicates that bridging lenders are well prepared for the environment ahead and are confident they have the right processes and personnel in place to ride out the storm and be well placed to benefit from future economic growth.”
Bridging market rises by 15 per cent in 2018 – ASTL
The fourth quarter of last year saw an increase in the value of loans completed, outstanding loan books and applications in 2018 compared to 2017, according to the latest figures released by the Association of Short-Term Lenders (ASTL).
During this period, the value of applications increased by 13.4% to nearly £21.5bn and total loan books increased by 3.6%.
The value of loans completed for the quarter ending 31 December 2018 increased by 13.5% on the previous quarter and the value of applications increased by 0.3%, although the value of outstanding loan books decreased by 7.1% during this period.
Benson Hersch, CEO of the ASTL (pictured), said that these results showed that in an uncertain economic environment, members are continuing to provide useful, flexible finance for a whole range of purposes.
He added: “They are doing so whilst maintaining a commitment to high standards of underwriting. This is very encouraging and indicates a sustainable sector that is built on robust foundations.”
Pressured lenders must resist temptation to increase risk – Hersch
ASTL membership has grown significantly over our first decade – we had 19 founder members in 2008 and this has grown to 65 members and associate members in 2018.
We saw several new entrants join the sector in 2018, with varying levels of experience in short-term property lending, so it will be interesting to see how these challengers fare in the next 12 months.
The volume and value of the short-term lending market continued to rise in 2018.
Completions by ASTL members were close to £4bn for the year ended 30 September 2018, a rise of 21.2% on the figures for the year ended 30 September 2017.
During the same period, loan books have increased by 16.6% and applications by 8.9%.
Promote understanding of issues
The ASTL has been working with various organisations during 2018. These include the Financial Intermediary and Broker Association (FIBA), with whom we aim to foster greater broker-lender understanding.
We’ve also participated in discussions with the National Association of Commercial Finance Brokers and Financial Conduct Authority, as well as responding to various FCA proposals.
We’ve also held a series of seminars on fraud and other issues such as development funding.
At the ASTL, we’re excited about what 2019 holds.
We plan to provide practical education for staff with less experience, as well as seminars to promote understanding of various issues.
Resist temptation to increase risk
The economic climate is expected to be more difficult in 2019, with exit and refinance becoming tougher as traditional lenders are even more cautious.
It’s difficult to see how all short-term lenders will flourish – mergers and acquisitions are likely.
It will be interesting to see if peer-to-peer lenders struggle in 2019. If so, regulatory bodies are expected to react.
On the whole, short-term property lending will continue to grow as firms take the opportunities presented by the continuing lack of so-called mainstream finance.
There will be pressure on rates and loan-to-values, but experienced and well-run firms should resist the temptation to increase risk levels.
Despite the pitfalls for the unwary, the outlook for the short-term lending sector remains reasonable.
ASTL suspends Amicus membership
In a statement issued today, the trade body said it was making the move following the halt to Amicus Property Finance’s lending.
ASTL CEO Benson Hersch (pictured) said: “The membership of Amicus plc has been suspended by the ASTL whilst the company continues to consider its position, and future.”
Earlier this week Amicus Property Finance confirmed it was not conducting any further lending after its shareholders were unable to reach an agreement on an investment deal.
Amicus group head of marketing and communications Andrew Bullock told Specialist Lending Solutions the lender was taking advice on its next steps but that nothing had been confirmed yet.