Jonathan Sealey, chief executive officer of Hope Capital, takes a look at what the new year holds for those in the short-term market.
The bridging market is incredibly buoyant at the moment and there is no reason to believe that this will not continue throughout 2016.
While the last Association of Short Term Lenders figures showed that the rate of growth had slowed slightly in the three months to September, this has not been our experience at Hope Capital at all.
In fact, I believe the run up to Christmas last year has been the busiest that most people have ever seen with no let up right up until Christmas. In fact, we were still processing completions on Christmas eve itself as demand was so high.
The appetite for bridging loans, in our experience, is coming predominantly from builders and developers, with investors snapping up more new sites all the time.
Confidence seems to be high across the whole property sector; starting with demand from consumers for places to either buy or rent and this demand is providing developers with the confidence to invest in properties to, build, refurbish or redevelop.
Of course the government has made it clear that it is definitely on the side of the developer at the moment so there are fewer objections to potential developments. Even commitments for Section 106 money are being overturned or reduced in some cases by opportunistic developers who feel that they have a case.
We have seen councils lowering 106 amounts as they believe they would fail at appeal following the housing minister Brandon Lewis’s letter to councils in November suggesting that they should “respond constructively, rapidly and positively” to requests for renegotiations.
With more investors realising the benefits of short-term finance in enabling them to both buy and redevelop properties, the bridging sector is only likely to increase and as a result, I think that bridging through the ASTL will exceed £3bn this year.
Of course the fly in the ointment is increasing regulation. Whether bridging firms are directly affected by the Mortgage Credit Directive on 21 March or not, there is a steady move towards raising standards, which in itself is no bad thing, but it is likely to have an effect on how business is transacted across the whole sector.
Transparency is key, whether or not a lender or a loan is regulated and there is an increasing drive for all fees, broker fees included, to be disclosed to the borrower.
ASTL members voted before Christmas to ensure that this issue of whether a lender is regulated or not is clear on each lender’s website. In addition, every ASTL member agreed not to pay volume overrides or other inducements that could be seen as unfair and not in line with MCOB. This is a voluntary arrangement to raise standards, but it is highly likely that regulation will continue to encroach further, enshrining measures such as these in compulsory regulation over time.
The change in buy-to-let taxation rules is also likely to have an effect on bridging as many bridging loans are used by landlords to either purchase a property or to refurbish one.
As the new taxation and stamp duty levels kick in, this is likely to result in a either a rise in rents or a lowering of property prices as the costs are passed on.
Ultimately in 2016 however, global events permitting, the demand for bridging finance is set to grow as confidence stays high and more and more investors realise the benefits of using short term finance as a solution.