The Bridging year in review
As we head towards Christmas it is a good time to review yet another “Bridging Year” that seems to have flown by, before we are deluged with a plethora of articles looking forward and making predictions for a successful 2013.
Predictions for the last year inevitably focused (as they probably will for 2013) on the possibility of new entrants and the effect on pricing, whether any firms would leave the sector, the size of the market and of course regulation.
Looking back there have been a number of smaller entrants with some established lenders entering into more exclusive highly publicised arrangements with packagers and there has been a shaving of some headline interest rates. To me this is a case of some of the higher profile more active lenders bedding down strategies they hope will grow their bridging business over the coming years.
It may also indicate that we are seeing a fragmentation of the sector into two main types of lenders, namely those higher profile, lower priced more risk averse lenders and those which may be more asset focused with higher pricing.
2012 saw the exit of a main player from the bridging scene with much focus on its Collective Investment Scheme method of funding. What is certain, is that firms with similar funding models may come under increasing scrutiny from their investors or lenders, and the issues raised by the saga are unlikely to make it any easier for similarly funded firms to raise funds.
In addition to the possible impact on funding, the negative publicity, not just in financial publications, but in the broader media, counters the considerable efforts made by so many to have bridging lending regarded as a respectable niche product within the wider mortgage market.
The debate on the size of the short term bridging market has a capacity to generate excited discussion like few other topics. The headline figure at the beginning of the year was £1bn.
When it comes to this hot potato topic, I like “facts” and for me one thing stands out like a snow-covered mountaintop above the clouds. For all the headlines, the fact of the matter is that there are no independently audited figures of data provided by a clear majority of the market participants relating to “loans secured against real property for terms of 12 months or less” – you cannot take the lawyerly love of a clear definition out of me! It is a fact that the astl collates figures, but its members do not wish those figures to be published, and whilst the astl is representative of the short term bridging market, it regrettably does not represent all the higher profile lenders. Put simply there are no independent accurate whole of market reliable figures for the short term bridging market, for example such as the CML provides for the main stream mortgage market.
The short term bridging market is by comparison small, its lenders highly competitive (which is a good thing) but also incestuous with many key participants having previously worked for competitor lenders – accordingly, volumes and values of loans completed are highly sensitive for such lenders and there is simply no appetite to share the data. Consequently, lenders who extrapolate their own business data can only in my view make estimates for the size of the market
Further, anyone with an academic background, used to seeing sources quoted throughout any article or paper, let alone one which makes bold claims and assertions, can only view with healthy scepticism the figures and accompanying headlines about the size the bridging loan market which have been trumpeted throughout 2012.
What we can say for certain though is that for United Trust Bank’s Bridging Department, 2012 has been a very successful year characterised by the substantial growth of our loan book. We have seen the completion of several large complex loans more akin to structured finance than the traditional single security single borrower bridging loan. By completing these loans we have assisted high net worth customers and believe that this sophisticated use of short term finance is going to continue for the foreseeable future.
Towards the end of the year we saw the much-awaited FSA’s MMR Policy, and put simply, it was a milestone for those lenders such as United Trust Bank who undertake regulated bridging loans. In it was clear acknowledgment of the special attributes of short term bridging loans. This is crucial given that the majority of bridging loans do not require the customers to service the interest on a monthly basis from their own financial resources.
This brings me neatly to the astl. There has been a much-publicised change of leadership with Benson Hersch taking over from Adrian Bloomfield. I know Benson well and wish him and his executive the best for the various challenges that lie ahead. It is also proper to thank Adrian for the work he has done as astl CEO over the last few years. There will be a fair few individuals and firms that have been fairly critical of the astl in recent times who will stand to benefit from the work and achievements of Adrian and the astl, especially when it comes to how the issues concerning bridging loans have been acknowledged by the FSA in the MMR Policy as mentioned above.
It is of course easier and safer to review the previous 12 months than to predict the next 12, but I think one is on safe ground in saying that the review of 2013 promises to be as interesting as that of this year.