MMR fuels bridging market
Jonathan Sealey is chief executive of Hope Capital
It is certainly our experience that the interest in bridging loans is higher at the start of this year than anything seen in the last four or five years, while the size of the loans required is outstripping anything experienced before.
As a direct comparison with last year for example, our loan values are ten times those they were at the start of last year and we can’t be the only bridging lender experiencing these volumes. In fact the recent ASTL figures showed that the value of applications increased by 97% in the last quarter of 2014 over the same time the year before. So why is it that bridging has suddenly become so popular?
I think that the MMR has had a part to play; as it has become harder for people to get a mainstream loan, borrowers and their advisers have had to think more creatively and look for different solutions that it wasn’t necessary to consider before. This in itself is leading to a greater understanding of what bridging is and the role that it has to play.
This is not to say that bridging is replacing a mainstream loan, as that will never be its role if it is being sold correctly, rather it appears to be helping to overcome some of the challenges presented by the MMR, such as greatly increased turnaround times in some cases.
The increased amount of time to get a mortgage can jeopardise the purchase of any property that requires a quick sale, so it is driving many borrowers into the arms of bridging lenders in the first instance while the mortgage is set up. Where residential borrowers are at a disadvantage is in the ludicrous situation where some mainstream mortgage lenders refuse to even look at refinancing the client’s loan in under six months after the bridge was set up. This is not the case with every lender but it can penalise the borrower, as while bridging rates have dropped significantly, by the nature of the risk involved they are never going to be as low as a long term mortgage rate.
In contrast there is very much more flexibility with commercial loans which can be refinanced after just two of three months if the borrower’s circumstances and the exit route allow it. It is this type of loan that we are certainly seeing the most, as developers capitalise on the growing appetite for property to acquire, renovate and refurbish a whole range of properties.
Increasingly bridging is seen as a valuable tool; I believe that it is throwing off its reputation as lender of last resort and instead educated brokers are seeing bridging as one of a range of options that they can use to best meet their clients’ borrowing needs.