Bridging lenders

Are we likely to see more non-principal lenders enter bridging?




More non-principal lenders are expected to enter the bridging market as investors look to improve yields on funds, according to one specialist finance broker.

The comment follows a discussion last week from industry professionals on whether principal bridging providers were more flexible than non-principal lenders.

This year has seen a number of new entrants to the bridging market, with some such as ActivTrades and Bond Wolfe Finance using their own funds, while others, such as Tuscan Capital, using a mix of private and institutional investment.

Are we likely to see more non-principal or principal lenders emerge in the bridging market?

“We expect principal lenders to remain dominant, as long as advance rates remain high and funding costs remain low from the funding lines which support them,” said Michael Dean, principal at Avamore Capital.

“If there is a substantial drop in the advance rates and an increase in interest rates of these funding lines, then we expect non-principal lenders to be prominent.”

However, Andy Georgiou, business development manager for north London at London Credit, expected to see more non-principal lenders enter the market.

“I believe that we are likely to see greater numbers of non-principal lenders emerge in the bridging sector as tighter margins create more need for lenders to expand their businesses and employ economies of scale. 

“In order to achieve this, alternative funding sources are required.”

‘People will always be attracted to the bridging market’

Colin Sanders, CEO at Tuscan Capital, explained that the availability of new external funding was a primary factor in the rise of bridging finance following the financial crisis a decade ago.

“Frustrated by the lack of opportunity elsewhere, cash-rich investors were quick to notice the premium returns on offer through short-term real estate lending.

“Deployed alongside more traditional methods of funding, such as via equity, this has enabled a new and innovative generation of bridging providers to pump additional liquidity and resource into a sector that had barely changed for nigh on a century.”

A number of new and existing bridging lenders have recently secured funding lines from institutional investors, including Pivot and Assetz Capital.

Jonathan Sealey, CEO at Hope Capital, added: “People will always be attracted to the bridging market because of the returns it is perceived to deliver. 

“Other smaller principal lenders will enter, usually in the form of people who have made their wealth elsewhere who are looking for returns outside of what the stock market can deliver.

“Larger, established banks will no doubt continue to look to enter the market, either under their own name or by funding existing players, in order to diversify from their mainstream 

What do brokers think?

“I think … we will see more non-principal entrants coming in to the market as investors inexorably seek to improve the yields on funds held,” said Geoff Wilson, managing director at White Rose Finance Group.

“Whether this is via investments into new and emerging P2P bridging platforms or fund managers directly backing new entrant bridging lenders remains to be [seen] – probably a combination of the two.”

Chris Oatway at LDNFinance agreed, adding: “The upward trend of non-principal lenders is expected to continue in an expanding market thriving from high levels of demand.”

Zed Lorgat, practice principal at JM Financial, said the bridging sector was buoyant with new principal and non-principal lenders and felt there was room for more of both.

Interest rates are still very low and unless people with cash savings [in deposits] can find other routes to making money, such as trading, which, remember can be highly volatile and risky, then property-based lending is going to become even more of a sensible proposition to utilise their monies. 

“Also, bear in mind some of the larger players have tightened up what they will and will not lend on [thus] creating room for opportunity for the newer entrants.”

 

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