The bridging market is coming of age. Often thought of as one of the most specialist niche sectors of the market it has also historically been tainted with a poor reputation.
There is a growing need in the ultra-competitive property market for quick loan solutions. Datamonitor shows the sector is currently growing by 16 per cent annually and is expected to be worth more than £5.6 billion by 2010. While these are strong figures it should be remembered that bridging loans are far from homogenous products and a great deal of care and attention must be given due to the very nature of the loan and the possibility of changing circumstances.
SP: How has the perception of the bridging loans sector changed over the past couple of years?
JJ: There is definitely increased awareness by intermediaries which has resulted in an improved perception of the sector. Some previous misconceptions of the sector being full of ‘cowboy’ providers or ‘loan sharks’ have been refined with people now more of the view that the majority of providers are professional, experienced lenders who provide flexible loan solutions for many different scenarios, with a responsible approach. The press have also provided more coverage on bridging finance from a positive slant and this coverage is continuing which is great news for the sector.
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What have been the driving factors that have boosted the bridging sector?
This has been achieved by bridging companies raising general awareness, educating the intermediaries better regarding products and also by the already established intermediaries within bridging sector doing their bit, for example, explaining how bridging finance can help their customers and the financial benefits to them. Increased competition in the marketplace has created competitive rates and products for the consumers.
What are the benefits of bridging finance for consumers and intermediaries?
The main benefit for consumers is that it might enable them to purchase that ‘dream’ property as there is no need to lose out due to remortgage funds not being available or their house not being sold. Bridging finance is easy and very quick to arrange with increasingly competitive rates. It enables intermediaries to have two income streams on remortgage cases which is a valuable addition to their portfolio of services and proposition.
In which circumstances is bridging finance most appropriate for intermediaries to direct a client towards the sector?
The traditional bridging scenario is buying a new house when an existing property is not yet sold but can be used to raise funds on property to be used for any purpose, for example injecting money into business, avoiding bankruptcy, purchasing property overseas, purchasing at auction, capital raising and new build developments.
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Who would typically opt for a bridging loan and in what circumstances?
Personal and corporate borrowers for various purposes as previously mentioned. Although there are a number of other circumstances. I mean who would ever have thought the management team of Wembley stadium needed to take out a bridging loan to repay a scheduled repayment that they didn’t have the cash for?
What effect will the recent Bank of England interest rate rise have on the housing market and specifically the ripple effect on bridging finance?
The recent rate rise came as no surprise. Whether the rate increase will have the desired effect on the housing market is questionable as the level of house prices year-on-year continues to rise. Some areas in particular are seeing demand still outstripping supply and many buyers will offer over the asking price to secure the property. The sector will continue to grow as rates remain or potentially increase further. The consumer may need to raise funds from a number of investment properties they have in order to meet scheduled loan repayments or to avoid repossession if their buy-to-let investment remains empty.
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What more could be done to educate brokers in terms of their understanding of bridging finance?
Business development managers (BDMs) will be imperative for lenders to educate brokers on the benefits of bridging loans for themselves and their customers. Seminars and more awareness in the wholesale mortgage market would also help brokers to think of bridging as part of their day to day portfolio. Easy to navigate websites are also the key in providing education. Many brokers are too busy to attend seminars or other such events, so having a website which is user-friendly and easily understood in plain language will give brokers the basics of bridging together with the opportunity to register and submit business online.
The potential for a bridging finance sector trade body has gathered pace, with the Council of Mortgage Lenders (CML) stepping up to support the idea. What are your thoughts on this and what would be the benefits?
This would be a great idea and would benefit consumers and intermediaries alike. It will result in more awareness in the market and transparency of firms’ terms and processes which would possibly see some lenders moving out of the sector as a result. This scenario will result in the consumer and intermediary being able to make a more informed choice as to which bridging provider to use if such a trade body was to be set up.
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How important is technology in bridging finance and what future innovations are in the pipeline?
Technology is a very important part of the process due to the speed required in the bridging process and e-conveyancing would assist greatly in this, as would the increase in the availability of automated valuation models. It is also important for brokers to be fully aware of the progress of cases regularly, even more than once a day via e-mail and SMS text message, etc.
If intermediaries are looking towards building an affiliation with a bridging loan company, what qualities should they expect?
Transparency is a major factor, so that brokers are aware at the outset what they can expect from a provider at all times, both in terms of product and service. They should also look for a provider with experience in the sector due to the specialist nature of bridging finance. Choosing a bridging provider affiliated to the Financial Services Authority, the CML, The National Association of Commercial Finance Brokers or the Association of Mortgage Intermediaries is also beneficial as the mortgage adviser will gain confidence from these accreditations.
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Are more lenders expected to enter the market and what will this increased competition bring to the sector?
More and more lenders are coming into the market all the time and competition is increasing as a result, particularly in the past 12 months and this can only be good for intermediaries and consumers alike. Having said this I don’t think they will all survive and those providing the best overall package of service and product will be the major players.
What does the future hold for the sector?
The future is very bright and increasing all the time. With more and more brokers becoming aware of the benefits for themselves and their customers, the uses for bridging finance becomes more diverse and with the housing market still buoyant, these factors will all add to the future increase of the sector. The sector expects to be at £5.6 billion in 2010 from it’s current book at around £3 billion.
