Bridging in the mainstream press

Bridging in the mainstream press




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The bridging industry has continued to receive a considerable amount of press attention throughout the year, providing welcome publicity to educate borrowers about the availability of this form of finance.

Yet looking back at the coverage, a proportion of the press has focused upon irresponsible lenders and intermediaries, despite a growth in bridging indexes. Whilst it is important that all rogue individuals are held accountable, the mainstream press has a tendency to present a largely unbalanced view of the bridging industry.

 

Throughout the year, Bridging & Commercial has endeavoured to dispel this misguided information from becoming the consensus by responding with better informed, impartial information.

 

A cautionary article published in The Guardian earlier in the year alerted homebuyers to some risks associated with bridging. Although recognising that bridging is a temporary measure and suitable for only a minority of situations, it warned that borrowers may be “stuck with an expensive loan for a long time” if they fail to organise an adequate long term contingency.

 

However, these warnings appear to be unwarranted. As Alan Margolis, Head of Bridging at United Trust Bank, highlighted, a bridging loan will only be issued where there is a clear and guaranteed exit. Clearly, it is not in the interest of responsible lenders to issue unsound loans – not only will this damage their returns but reputation too.

 

Following a similar line of argument, in recent weeks an article in The Times provided further examples of bridging used for the purchase of residential homes in consumer-style transactions. Providing a case study of a homeowner in financial struggles, the article suggests lenders are taking advantage of vulnerable borrowers by charging high interest rates to those who really can’t afford the repayments.

 

Whilst the high costs associated with bridging are indisputable, this kind of case study not only overlooks the diversity of this financial product but fails to acknowledge that a bespoke bridging loan is inherently different from mainstream mortgages and should not be used as a long term financial solution.

 

Despite this largely negative presentation of bridging, lenders on the whole have supported the reservations expressed by the press, including Alan Cleary, Managing Director of Precise Mortgages. He said: “I think the mainstream press have been rightly cautious about the bridging market as it is unregulated and is a market growing whilst other lending markets are contracting.” 

 

It is clear that lenders are keen to endorse cautionary sentiments so that borrowers think very carefully about whether a bridging loan is really for them. The mainstream press, as a fourth estate, do have an important part to play in warning consumers about the risks involved. Alan continued: “It is up to the industry itself and the trade bodies to portray a more positive message and we will all benefit if standards are genuinely improved for customers.  At the moment I also have concerns about the practices of some of the lenders and brokers in this market.”

 

However, what is of concern is that there appears to be a lack of balance in the representation of bridging in the media. There is very little mention of hugely beneficial uses of bridging loans in commercial transactions.

 

Lucy Hodge, Director of Vantage Finance, commented, “It would be good to see more industry professionals writing in the mainstream press on the topic, because my overall opinion is that the press received is written by those who do not fully understand the market and therefore do not reflect a true picture of why bridging finance has grown in popularity.

 

“The Guardian article talks about just a very small selection of uses for bridging, and in reality it has served as a lifeline for many clients during a difficult time in the mainstream financial markets.”

 

During 2011, Bridging & Commercial has encountered many interesting bridging case studies that have failed to reach the mainstream. For example, Masthaven provided a retired couple with a loan to refurbish a property for their son, and without a bridging loan the transaction would have been impossible. 

 

Aside from consumer transactions, there has also been a number of significant high profile bridging loans used in business acquisitions, further illustrating the versatility of this financial product. Household names including Saab, Cadbury,

Kraft, GM, Ford, Chrysler and Carlsberg have all needed a bridging loan to acquire new assets; without this facility such acquisitions and mergers would not have been possible.

 

James Bloom, CEO of Regentsmead, expressed disappointment at some of the negativity in the press. “As usual with this kind of journalism we have seen the deadlines were done to be sensational and the positives of bridging were not focused on. Without bridging there would be a lot of people in even more dire financial situations and it certainly has a place in the modern world of finance,” he told us.

 

Stewart Barnes, Director at Portman Finance, agreed, explaining: “We feel that bridging has been projected rather negatively by the mainstream press. Whilst they make some valid points and are right to point out the pitfalls of taking bridging finance without a realistic exit route, they make little effort to outline the positive aspects of “bridging finance”.

 

“We also feel that the term bridging has almost become a generic term for any lending other than from a clearing bank. From our own perspective, in over six years of lending we have not undertaken a single pure “bridging” loan i.e. bridged a residential purchase for owner occupiers, but we have assisted countless SMEs with short term funding.”

Jonathan Newman, Senior Partner at Brightstone Law LLP, believes the recent Times and Guardian articles have been negative on bridging. But, from his view he believes that “this is because these articles have been predicated, on a basic misunderstanding; that bridging loans are presented as an alternative for high street mortgages in day to day property purchases.”

 

Analysing both articles, Jonathan Newman thinks “both articles fail to recognise that this is not the prime market that bridging loan lenders aim to service.

“Theirs is a specialist product suited to service an urgent need to finance property opportunities, mostly commercial. Of course there is a difference in cost, but generally there are justifiable reasons for this such as the particular nature of the transaction, or the necessity meet deadlines that high street bank currently do not service in time or at all.

“Where bridging loans are taken on owner occupied properties, the funding purpose is quite often urgent and not associated with a purchase of the home, essentially commercial in nature. Commercial loans or loans for commercial purposes have always been priced higher.

“I have seen bridging lender service urgent funding needs to facilitate transactions which borrowers would otherwise have lost.”

Adding further cautionary sentiments to bridging finance, The Financial Times reported comments made by Sheila Nicholl, Director of Conduct Policy of the FSA, at the Mortgage Business Expo (MBE) 2011. She warned that brokers facing hard times may turn to bridging as an “imaginative” solution to their clients’ needs. Her comments suggested advisors may be inclined to provide inappropriate solutions to make a quick buck; however, she declined to make further comment as the Mortgage Market Review (MMR) is still under review.

 

Appropriately, The FT provided a balancing comment from IFA Michael Britten, of Ashley Law Bath, who ascertained that Nicholls’ assumptions may not only be inappropriate before the publication of the MMR but “insulting” to brokers.

 

Undeterred by such comment, there was a huge presence from members of the bridging industry at the MBE this year, highlighting that bridging is entering the mainstream and becoming a large part of a broker’s job. A significant number of stands at the expo housed bridging lenders, regulated and non-regulated, with a growing number of brokers enquiring about the uses of this type of finance.

 

In contrast to the aforementioned press, the Independent offered a much more positive view of bridging, endorsing the significant benefits in a contracting market. Duncan Kreeger, Managing Director of West One Loans, told the paper that they are seeing a boom in their bridging index due to a “lending void” left by mainstream banks. Particularly significantly in the article, Duncan explained that lenders such as West One Loans are allowing buy to let investors to expand their portfolio and therefore provide more choice to tenants, describing bridging as a “lifeline.”

 

Press such as this has aided the confidence borrowers are now beginning to invest in the bridging market, despite an overall decline in mortgage lending. In particular, the Independent reported West One Loans’ huge rise in bridging loans – a staggering 46 per cent in the last year. The inclusion of stats like this in mainstream press articles goes a long way to providing a further boost to consumer confidence in the market.

 

Statistics like these provide assurance to both brokers and lenders. Richard Deacon, Sales and Marketing Director at Masthaven, is extremely positive about the year ahead. He said: “I think bridging finance has been perceived very well in the press in general. It has certainly got more coverage than I have ever known.

 

“It is testament to the investors in the newer bridging companies making sufficient noise that it is heard above that of the standard mortgage markets.”

 

Colin Sanders, CEO of Omni Capital, offered a slightly different perspective. He said, “Given the significant raising of bridging’s profile in 2011, I’m rather surprised there hasn’t been more coverage in the national press. But this may have more to do with competing demands for space from other top-line stories – the economy, the eurozone, bankers’ bonuses etc – than with the inherent relevance of bridging as a newsworthy story in its own right.

 

“What commentary there has been has tended towards the negative, and, to my mind, rather lacking in substance. For this to change – and it must, as the continuing lack of market liquidity moves bridging further up the media agenda – there will have to better cross-communication between the industry and finance journalists.

 

“On the media’s side, I hope it takes a balanced and objective approach when reporting developments in bridging. But to do so, it needs access to well-informed, open and available commentators. These exist in plenty, but I’d also like to see our trade bodies take advantage of the opportunity to enhance their own role by representing the very best aspects of our sector.”

 

Steven Nicholas, Chief Executive of Tiuta Plc, reiterated that there is a common misconception in the national press that “bridging is a kind of ‘sub-prime lending’ – available and widely used by borrowers who are already in financial difficulty. We know that this is not the case at all.

 

 

“It is therefore important that bodies such as the AOBP and lenders such as ourselves continue to push out clear messages about what bridging is and what it isn’t, plus who it is suitable for and who it isn’t. We all appreciate the increase in profile for bridging, however it is important that we manage this coverage and ensure that all sides of the story are presented fairly.”

 

Speaking to numerous lenders within the industry, it has become clear that bridging finance is continuing to fill a much needed void whilst mainstream banks remain reluctant to lend. And, with lenders continuing to announcing a range of new products for the coming year, it seems bridging is likely to continue growing into 2012 and beyond.

 

By Alexandra Jones

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