Gavin Diamond is finance director at Cheval
The report published last month by Defaqto that suggested bridgers might face tough times ahead as a result of mainstream lenders loosening their criteria caused something of a stir in the industry.
Over the past few weeks, a number of pundits have pointed to the report - and possible regulation of bridging activity - as a sign of worsening market conditions for the nation’s short term lenders. They argue that bridging will be hit by an increasing number of mainstream lenders offering more flexible underwriting who will compete head-to-head for business currently serviced by bridgers.
I have read the many comments that have appeared in the press on the back of the market research, and feel that those who predict a bridging downturn have missed a number of fundamental points.
Bridging lenders have always adapted their products to meet market need – as market conditions change, bridgers have the ability to move quickly to keep their products relevant and competitive based on the availability of other types of funding. This is something that we have always done and been particularly good at.
Far from more flexible mainstream criteria being a threat to bridging lenders, it is actually a benefit. For bridgers, the take out or exit from a loan is often the single most important factor in assessing whether to lend or not. So, contrary to what many might think, any improvement in the mainstream market actually has a positive impact on bridging lenders, because it provides the borrower with additional repayment options. Giving borrowers more exit options actually enables bridgers to provide more loans.
In the past, improvements in the mainstream market have nearly always boosted Cheval and the bridging market in general. There were many more bridging lenders around when the mortgage market was buoyant in the late 2000s than there are now. Mainstream lenders had massively more flexible criteria than they do now, yet bridging boomed.
Aside from this, those who see clouds on the horizon for short term finance providers, must not forget that bridgers will always be quicker and more flexible at providing finance than the high street. We assess each deal on its own merit and take a lending decision accordingly. If the deal makes sense, a bridging lender will bend over backwards to provide funding. This is vastly different from the tick box exercise used by the mainstream market.
It is this flexibility which is our USP. It gives us a key competitive advantage over other lenders. Talk to the thousands of professional landlords who use bridging finance, to buy properties at auction or to release funds from their existing portfolios, and they will tell you why they prefer us over high street lenders.
And finally, the notion that the sector is unregulated and that regulation will represent a new and heavy burden on the sector, is very wide of the mark. A number of bridging lenders, such as Cheval, are already authorised and regulated by the FSA. We have been arranging regulated loans for our clients for many years now, in addition to providing unregulated finance.
Reading this, you will not be surprised to hear, that the Defaqto report and the comments from not-particularly-well-informed pundits, do not cause me much concern. Bridging lenders have been successful in good times and bad, and I do not see this changing.
