Bridging Market 2012 – The year so far
Back in January most commentators on and participants in the bridging sector were extremely positive about the prospects for 2012. Now that we are into July it is worth taking a brief look at the year to date to see if it has matched expectations.
At United Trust Bank we obviously see the bridging sector from our own perspective as a highly active participant and FSA regulated lender. Whilst clearly we cannot speak for everyone, there are discernible patterns in our business which we know, anecdotally at least, are shared by others.
Firstly, most introducers or lenders I speak to say that they, like us, are extremely busy and have been consistently so for most of the year. United Trust Bank’s Bridging Department has seen a steady increase in the number of loan completions throughout the year. So much so in fact that we recruited another Case Manager as well as bolstering the all important introducer facing service with the appointment of Gerard Morgan Jackson.
The reason for the general increase in bridging loan activity has been well documented and is easily understood. The mainstream large lenders as a body are under various pressures which have resulted in their reducing the volume of lending. This is not just a matter of restricting new credit, but importantly, not renewing existing facilities. Even where customers have good credit histories with their lender, when the term comes to an end, the mainstream lender often will simply not extend the facility, requiring the borrower to refinance and / or sell. We see and hear this confirmed by many customers week on week. A bridging facility can buy these borrowers time to rearrange their affairs and the cost of bridging can be offset or possibly even negated by not having to sell assets at a distressed price or by being able to arrange competitive long term funding.
B&C readers will have noticed other bridging specific issues these past few months. For example, there have been attempts to determine the size of the bridging market. Whether or not the claimed estimates of in excess of £1 billion are accurate, it is worth remembering that this is still very small compared to the mainstream mortgage market. According to the CML, house purchase and re-mortgage lending in May alone was over £10 billion. Increased awareness and publicity of the bridging sector can only serve to attract yet more lenders to the market and whether this results in increased competition, confusion or both for introducers remains to be seen.
There has also been lively discussion on how different bridging lenders calculate their interest with specific reference to rolled up versus retained interest. UTB, like some other bridging lenders, utilises the more cost effective (for the customer) rolled up method. But of course the interest rate and the method of calculation is just one element of the cost of a bridging loan. This is where customers who take out FSA regulated loans are at an advantage, because the Key Facts Illustration allows customers to see not only a detailed break down of the costs, but also the total cost of the loan expressed in pounds and pence.
Another significant sector event has been the appointment of Benson Hersch as the Chief Executive of the ASTL. Benson replaces Adrian Bloomfield who over a number of years has worked tirelessly to promote the sector and bring the historically disparate lenders together.
Without the efforts of Adrian and the ASTL it is highly unlikely that the characteristics of short term loans would have been recognised and distinguished by the FSA in the recent MMR. Lenders for instance could have been required to meet the mainstream mortgage proposals relating to affordability whereas for most bridging loans the borrower’s ability to afford the monthly interest is not a factor because interest is usually rolled up or retained.
Looking forward to the next six months, I anticipate that the competition for FSA regulated business will become even more intense and with headline bridging interest rates at the lowest they have been in my 15 years in the business, it will be extremely interesting to see what effect, if any, this will have on pricing generally.
The bridging market is undoubtedly small compared to its big brother, the mainstream mortgage market, but the first half of 2012 has been characterised by vibrancy and publicity out of proportion to its size and I believe this will continue for the rest of the year.