Gavin Diamond Blog

Gavin Diamond, Head of Finance, Cheval

The past 12 months have been pretty tough for bridging lenders - but they have marked a significant improvement on the poor business levels seen in 2009.

Throughout the year, demand has been underpinned by the usual sources – buying a new property before the sale of an existing home, where the security property is unsuitable for mainstream mortgage purposes, or where there is a time constraint for a transaction such as at a property auction.

However, in addition to these drivers, there has been a surge in demand from individuals who would typically have gone to mainstream lenders. Restrictions on liquidity have meant cases being turned down by high street banks that, in other times, would have been perfectly acceptable.

Over the past 12 months, we have completed plenty of deals that have made good sense, but have been refused by mainstream lenders - despite sensible LTVs, suitable security properties and realistic exit strategies.

This has resulted in a steady stream of customers coming to us via brokers who would usually have gone to the high street banks. With these customers, bridgers’ traditional willingness to bend over backwards to make a deal ‘work’ has been particularly important.

We can evaluate deals, make truly informed lending decisions and secure finance for customers within their specified timeframe, rather than the banks’.

Although each bridging product comes with its own set of criteria, loan applications are assessed on their own merit. We take the time to investigate whether cases make sense from the perspective of both the lender and the borrower, and make our lending decisions by gaining a thorough understanding of the transaction.

Contrast this with mainstream lenders who, restricted by tighter liquidity, have been turning down applications simply because they do not ‘tick all the boxes’.

This new stream of business will almost certainly continue into next year.

Liquidity has undoubtedly been pretty tight and I don’t expect to see much change on this front in 2011. Balance sheet repair is going to mean that the environment is not going to loosen up overnight.

This means that there is likely to be an increasing drive for the more sophisticated bridging players to differentiate themselves from the competition. At present, products tend to be markedly similar from lender to lender. The only thing that really sets one apart from another is level of service and maximum loan sizes .

This could all change though, with more product differentiation becoming evident as we move into 2011.

This may mean rate competition – not that pronounced at the present time – or product innovation, or both. At Cheval, we are currently working on a raft of new product changes that, together with our award-winning service levels, will continue to make a real difference in getting transactions financed..

Given the macroeconomic background –plus a difficult employment market - I can’t see business volumes taking off in 2011.  This will make differentiation particularly relevant, with operators looking to win bigger slices of a fairly static cake.

One thing that I do hope will become clear next year is the scale of FSA regulation of the bridging sector. We should get a better idea of which bridging loans will fall into the regulated net and which will not.

As we all know, FSA regulation only really impacts ‘first charge’ loans at present, where the residential home is used as security. All others escape FSA attention. This may not be the case for much longer though – and could possibly reverse the influx of new entrants to bridging that we have seen over the past couple of years.

So, while the indications from the CML and other market experts suggest that Gross Mortgage Lending is likely to remain flat, 2011 is shaping up to be a particularly interesting year for bridging.