The bridging industry has experienced dramatic changes over the past decade. We’re approaching our 10th anniversary at Vantage Finance, and with this milestone comes the chance to consider the changes in the bridging market over the last decade - from the range of products available to the overall perception and attitudes towards the industry.
Pre-credit crunch, the bridging market was very niche, with a small number of lenders offering a limited range of products to a specific client base. Despite the specialist nature of its trading activities, the bridging market was largely stable at this time, but did not boast much potential for expansion. The attitude towards bridging loans was a largely negative one, with this particular kind of short term finance regarded as a last resort for many borrowers or perceived as a product available to mend a chain break.
The nature of the bridging market instantly changed when the financial crisis hit. The lack of liquidity in the mortgage market generally meant that, for many borrowers, bridging finance was able to take precedence over alternative loan options and the demand for products soared as a result.
This dramatic increase in demand provoked an influx of new lenders, often backed by new funding lines. Some of these funding lines were provided by wealthy individuals and companies with healthy cash balance sheets, who turned to the bridging market to act as lenders and obtain the best returns on their investments in the face of low interest rates. This development meant there was no lack of funding available, but also that the market became saturated with an abundance of products and services. Lenders embarked on a product innovation drive in order to retain and increase their market share without having to rely on pricing alone.
Along with new lenders and products came a change in pricing, driven by competition. It became a rate war. While bridging prices have traditionally been high compared to other finance options, rates have continued to fall over the past 24 months, with loans available from just 0.65 per cent per month compared to figures closer to 1.5 per cent reported pre-recession.
This competition in an overcrowded market inevitably led to some market consolidation; we saw some big names in bridging, such as Cheval and Tiuta, exit the market. To continue to improve on the ability to fund loans at lower pricing, lenders have looked to secure cheaper costs of funds to support the lower pricing – some have succeeded, while others still have a high borrowing base.
This combination of new lenders, products, increased availability and lower pricing has given investors greater access to funds, enabling them to grow their portfolios. The recent growth that the bridging market has experienced, therefore, has been strong – West One’s August 2014 Bridging Index indicated a 28 per cent increase in loan volumes year-on-year. The recent index also showed average interest rates hitting new lows of 1.14 per cent over the last two months.
These figures, alongside our experience with clients, demonstrate that bridging is no longer the lending of last resort, and is widely used by a range of clients. The popularity of product types has shifted as well with residential refurbishment loans growing in popularity. The lenders that fought off the competition during the crisis have proven their worth and bridging loans now offer the speed and flexibility that borrowers need from a short term product, with property investors in particular keen to take advantage of the speed that bridging loans offer.
While the current bridging finance landscape is almost unrecognisable from 10 years ago, I don’t believe the future of the market will be as dramatic as its past – rather than growth increasing rapidly, we’re more likely to see the market stabilise.
In the next few years, I think that as more mainstream lenders such as Aldermore and Shawbrook offer short term finance, it will be interesting to see how the products change.
Overall, the bridging market has proven its worth and will continue to provide valuable products for a wide range of borrowers.
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