Alan Cleary

A not-so-quiet month



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August is usually a quieter month for those of us in the bridging world.

It tends to coincide with estate agents going on holiday, fewer properties being put on the market and a general reset before the school term starts in September and the year begins again.

This year has been a different story, for us at least. Rather than seeing a seasonal slowdown, we've actually seen bridging enquiries and completions pick up. I've been asked whether this summer rush has anything to do with the base rate rise earlier this month, but my sense is not. While in the mainstream residential market, interest rate changes can have a noticeable effect on customer behaviour – particularly in the remortgage market – bridging doesn't really work like that.

Consider the path of bridging rates over the past decade. They've gone from around 1.5% a month – when the base rate was 5.75% in 2007 – to a low of around 0.49% a month today, when the base rate is at 0.75%. Rates in the bridging market are more a function of competition between lenders, the cost of funding and, increasingly, the evolution of specific niches in the market.

Bridging has always been used to fund the purchase of property at auctions, to finance refurbishment projects and to bridge the gap between the purchase of a new home and sale of an old one. But 10 years ago, there was one price for every scenario, give or take a couple of basis points. Today, the market is far more sophisticated.

Products have evolved and pricing has diverged to match the specific risks that each scenario represents. Generally speaking, a light refurb deserves a lower rate than a development project. A consumer whose sale has fallen through at the last minute due to reasons controlled by the purchaser is even lower risk, typically.

Cost of funding has also been a big driver of competition in the short-term market. In 2010, private equity, hedge funds and investment banks were struggling to find decent returns anywhere. Bridging providers were still offering eye-watering returns in excess of 20%. It was a no-brainer. Today, there's a lot of this money still in the market, demanding returns of around 15%. But to offer this, lenders must charge a rate averaging around 1.5% a month to turn a profit. For the majority of sensible deals, that is a rate that is no longer competitive. The entry of lenders with access to retail deposit funding has facilitated much more competitive – and fair –pricing.

At Precise, we've always been committed to pushing the market towards, serving customers better. We've innovated on product design over the years, launching the bridge-to-let back in 2013. Today, this is a staple product across the market. This commitment to giving our customers what they want, and pricing it as competitively as we can continues. We now offer our lowest ever bridging rate at 0.49% - something that could account for our recent uptick in business. Because we're a full service lender, we also pay close attention to adjacent markets. Our BTL team have just launched a holiday let product and we're now accepting multi-units. This is particularly important in the bridging market, as exit is king.

It's no secret that landlords are under pressure following the tax changes. But those who are rebalancing their portfolios, selling off less profitable properties and purchasing lets with better returns, are, in our view, good business. Bridging is often key to making this transition, particularly given the higher cost of stamp duty now levied. The wider housing market may be becoming more subdued, but there are still plenty of opportunities to be found with the right partner.

 

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