The latest EY bridging market study surveyed 40 UK bridging finance lenders with a combined bridging loan book of £4.3bn.
This represented an increase on the 11 bridging lenders who participated in EY’s survey last year.
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The survey revealed a number of interesting insights into the current state of the bridging market, the key ones being:
- For the majority of respondents, broker-related channels are most important for loan originations, as opposed to aggregator websites or third-party (non-broker) referrals
- 74% of respondents believe that the average monthly interest rate fell over the last 12 months. This is in contrast to only 32% of respondents expecting it to decrease over the next 12 months
- 55% of respondents are expecting an increase in repossessions, a significant increase on people’s view on the last 12 months
- Respondents have changed their view on competition. Only 39% of respondents are expecting it to increase, whilst 66% believe competition increased over the past 12 months
- Competition and access to talent are the two most important challenges for bridging lenders
- 82% of respondents believe Brexit is one of the key challenges impacting the UK bridging finance industry in the next 12 months
- Some 61% of respondents — most of whom had a loan book of less than £50m — have considered raising debt capital, while 58% looked at product diversification
Furthermore, the survey showed that almost a quarter of bridging lenders (24%) will be considering M&A opportunities over the next 12 months.
The majority of respondents who considered M&A opportunities had a bridging loan book of between £50m-250m.
Nick Parkhouse, partner at EY, stated that there was an acknowledgement across the market that there had been a significant rise over the past five years in the number of bridging lenders in the sector and, as such, a merger of players would be positive.
He claimed that the two main obstacles to M&A activity were:
- many businesses were not large enough to attract the attention of private equity
- where a bridging lender was looking to buy another, there might be a reluctance to pay goodwill (primarily driven by valuation expectations) unless the business they were acquiring could really bring something new
“We believe that bridging lenders will continue to look at M&A and the percentage looking will actually increase,” he added.
“However, the volume of transactions will remain low due to the goodwill issue.”
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