Marios Theophanous

The bridging sector has ways of finding new opportunities




There have been a number of factors impacting the bridging finance sector, including the changing way landlords need to consider tenancy laws, a slowing of house price inflation and the continuing uncertainty of the Brexit negotiations, which are stalling the wider housing market.

But, as we have learned from experience, the bridging sector has ways of finding new opportunities and providing funding in ever more flexible and evolving ways.

There are new lenders entering the market and they are establishing market share by offering lower interest rates as well as other forms of specialist finance. With Bridging Trends showing an average rate of 0.74%, the lowest it has seen, demonstrating that it’s a buyer’s market as lenders compete. However, how these lenders are funded is also a hot topic, as we have seen a number of them cease trading due to a lack of institutional and private backers as the changes to the buy-to-let market and increased competition take their toll.  

But the UK economy is in good shape with the Bank of England once again holding the bank rate at 0.75% and with any future rises expected to be gradual and limited. The Bank also reported that inflation is near its target of 2% and expectations are that the economy will grow at a steady, if slightly lower rate than forecast for the rest of 2019. It is also predicting that no matter what form Brexit takes, the Bank will keep inflation low and support the economy, which is good news for finance, business and consumers alike. 

For landlords, the market is still evolving and reshaping as we continue into 2019. With previous legislative changes now being in force for a while, landlords have other areas of uncertainty cast upon them with the proposed changes to the no-fault eviction rules, Section 21 notices and tenant fees. For evictions, landlords would have to use the less favourable Section 8 process, which many find time-consuming and costly. Although the proposed rule changes don’t yet have a start date, they won’t be applied retrospectively to existing tenants at the time of implementation. 

In the shorter term, the Tenant Fees Act, which introduces a deposit cap and deposit limits, comes into force on 1st June for all new and renewed tenancies, with existing tenancies being brought under the new rules from 1st June 2020. These are further indications as to how the landscape is changing in the rental sector. 

There is, however, one type of landlord which is on the rise and that’s the corporate landlord. This is where a company offers investment in build to rent blocks of apartments and take on the management of the development. Investors can be UK based or from abroad, but with the potential for higher returns, they are a growing market and a route for bridging and development lenders and property investors to consider. 

Bridging finance lending grew in 2018, as evidenced by the ASTL figures, which showed more than £4bn lent in 2018, an increase of 14.8% on 2017. More recent Bridging Trends data shows a slight drop in Q1 2019 compared with Q4 2018, but 20% higher than in Q1 2018, so we can assume that the bridging sector is still in good shape as we continue into 2019. 

A key use for bridging finance is the acquisition of investment property and this is still a driving force for lenders. Despite the issues being faced by landlords, demand for rental property remains strong with demand outstripping supply. In London, average rents are at an all-time high at £2,093 per month, with asking rents up 8.2% on last year, according to Rightmove. Most other regions in the UK are also seeing an increase in demand, showing that for the savvy landlord there is still a viable business plan for succeeding in the rental space. And there are still plenty of lenders with institutional or private funding to cater for the demands of acquiring suitable property. 

There are a lot of changes in the evolving market across the landscape related to bridging finance. We need to be vigilant and actively monitor the longer-term impacts of upcoming landlord legislation, but if history is anything to go by, the bridging sector will continue to adapt and provide innovative solutions for investors looking to acquire property, which remains in continuing high demand from tenants across the country.

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