A number of building societies have launched the product, which is designed to help those moving home who have not yet sold their existing house, or to purchase a property pending the sale of an existing asset. 

Market Harborough Building Society is one such lender to have introduced the one-year mortgage at a rate of 5.49% and maximum loan size of £1.5m.

“One-year mortgages being offered from building societies may take a very small market share away from bridging lenders,” said Michael Dean, principal at Avamore Capital.

“The building societies will try to capture the straightforward ‘vanilla’ deals, as those will be the only deals they would be comfortable to lend on.”

‘I do not see one-year mortgages competing directly with bridging loans’

Benson Hersch, CEO of the Association of Short Term Lenders (ASTL), felt many building societies had offered one-year loans “under the radar” for some time now.

“…While this can play an important role for people wanting to break a housing chain, they do not usually expand into loans for significant refurbishment, development, investment or loans to businesses which need access to money quickly, all of which make up a significant part of our members’ businesses.  

“As a result, this has not had a major effect on the turnover of our members.”  

Steve Smith, business development manager at Roma Finance, agreed, adding: "I do not see one-year mortgages competing directly with bridging loans as we offer a much broader range of niche properties, for example, unmortgageable properties or development deals.

“Also, the speed at which bridging lenders can release funds is – and will continue to be – far quicker than mainstream lenders.”
 

The one-year mortgage could prove popular with those downsizing 

‘A one-year mortgage product will certainly be attractive to some borrowers’

Jo Breeden, managing director of Crystal Specialist Finance, saw why some might use the one-year mortgage product, but also dismissed its impact on the bridging market.

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“A one-year mortgage product will certainly be attractive to some borrowers as it offers more flexibility over a longer-term tie-in, but it remains a basic product subject to the usual standard mortgage terms and conditions. 

“For these reasons, it has a place and there will be demand, but we do not see short-term mortgages replacing the need for bridging finance.”

Dave Pinnington, head of distribution at Finance 4 Business, felt the birth of the one-year mortgage would have a negligible impact on the bridging market.

“A bridging loan by design is either used for the purpose of speed or used to facilitate a transaction in the non-regulated arena, helping to fund investment purchases, property developers and auction purchases. 

“The advent of one-year mortgages doesn’t overcome any of the aforementioned. 

“Personally, I feel the introduction of one-year products in the mortgage market has been designed to appeal to those wanting to benefit from a cheap initial rate with one eye on potential interest rate rises, more than a product devised to encroach on the short-term sector.”
 

The one-year mortgage would be subject to traditional lending criteria 

‘I don’t see this as a threat, but as an opportunity’

Asked how the bridging industry could combat any potential threat from one-year mortgages, Michael felt that going back to basics was a good approach.

“Even though the term of the product is one year, the building societies will still carry out the same process and have a similar lending criteria to their long-term mortgages. 

“The way that the bridging industry could avoid the threat of one-year mortgages is by going back to the basics of bridging finance: speed, flexibility and [the] ability to lend on more complex cases.”

Matthew Tooth, chief commercial officer at LendInvest, added: “It may not be a case of avoiding a threat, rather current players solidifying our own processes and ensuring they are solid enough to withstand any new entrants to an already saturated market.”

Benson concluded by looking at how the one-year product could end up increasing awareness for other short-term finance products.

“I don’t see this as a threat, but as an opportunity for the responsible bridging market.   

“This can only increase awareness of the short-term market [for] brokers and customers who may in the past have shied away from the bridging market.   

“This is indicative of the importance of bridging as a means of achieving objectives which would otherwise have to be forgone.”