A great 2014 – but what’s next?

By Alan Margolis, Head of Bridging, United Trust Bank

Writing the December Lenders’ piece for AOBP Informer gives me the luxury of reviewing the year and it is safe to say that for the majority of us in the short term bridging sector, 2014 has been a very good year.

For UTB’s Bridging Department it has been a record year in terms of both value and volume of loans written and the WIP is pointing to a more robust start to next year compared to this year. UTB’s experience is echoed by other lenders whom I speak to and of course as a broker centred business, our introducers.

The robustness of the short term sector is a combination of many things. It goes without saying that the growth of the economy in 2014, or more accurately the amount of economic activity, has helped drive up the volume of business. When people and businesses feel more confident about things generally, they are more likely to transact and short term bridging loans are facilitators of transactions.

But whilst a year ago I was confident that 2014 would prove to be a very good year – it’s nice to be right about something for once – I believe that 2015 holds greater challenges for the sector.

First and foremost is the General Election set for 7th May. Two things are very different about next year’s General Election compared to any other of my political lifetime. One of course is the fixed date – a very good thing in my view – which gives us a clear line in the sand as to when things will change. The second is that I can’t recall a situation where there is so much uncertainty as to who will actually be in power. It seems unlikely that any single party will win with a governing majority and there are so many potential combinations for coalitions.

What does this mean for the Bridging sector? I believe it may affect the number of property based transactions as some people and businesses adopt a “wait and see” approach. Any reduction in business and personal activity could impact on the sector and it will almost certainly affect some borrowers’ exit strategy. For instance, they may seek to delay putting property on the market for sale until they know the outcome and whether for instance there is still the possibility of a “Mansion Tax” after the recent changes to Stamp Duty thresholds and rates. This will impact on the terms of loans as well as conditions imposed by lenders.

Outside of politics, the sector seems set for continued, if not increased, competition at both ends of the bridging sector. 2014 was relatively stable in terms of bridging loan rates with a gentle trending downwards. 2015 may see more intense rate price competition which will be all the more interesting given that there is likely to be a base rate increase at some point in 2015. That conflicting combination may put real pressure on some lenders’ margins. We’ll have to see what the outcome of this is.

In 2015, regulated lenders will be working on the Mortgage Credit Directive which will be implemented in 2016. Assuming the proposals that we have are finalised without further changes, what we do know at this stage, is that for loans where the exit is via the sale the secured property, the form and content of the KFI will have to change or lenders may seek to use the European equivalent, the ESIS. Also, process and procedures will have to accommodate the requirement to issue a “binding” offer. I don’t see the 7 day cooling off period being a problem though, as it will only apply to loans where the exit is the sale of the security property and in any event, borrowers who need to complete urgently, will be able to waive this.

On a more positive note, given the proposal to transfer second charge lending to the MCOB regime, more lenders may be willing to offer second charge loans that are not exempt for business purposes as it is easier to deal with MCOB regulation than consumer credit regulation.

So, compared to this year, 2015 brings greater uncertainties. However, bridging lenders are nothing if not adaptable and resourceful and ultimately, I believe the majority of lenders are capable of and will adapt to whatever challenges the economy generally, the property market in particular, the change of government and of course their competitors bring.