'The short-term finance market is in rude health'

There was a time when a bridging loan simply didn’t make sense for most people. Bridging was so expensive that it was understandably known as the loan of last resort. Added to that bridging lenders didn’t always have the best reputation for delivering the levels of service or satisfaction that borrowers and intermediaries were expecting.

Things couldn’t be more different today.

The low-interest environment today has made the cost of funding for lenders significantly cheaper. As a result, the flexibility offered by a bridging loan is now matched by the simple fact that it’s much better value. To put that into context, interest rates on bridging loans today on straightforward residential cases are about half where they were just four years ago.

And that has made a big difference to the popularity of bridging loans overall. Gross annual bridging hit £4.4bn last July, despite the uncertainty following the Brexit vote, compared with £2.1bn two years earlier.

Because these loans are so much cheaper now, they are more appropriate for a wider range of projects and borrowers. Long gone are the days when they were a final, desperate, last throw of the dice.

Take property auctions as an example. If someone buys a property at an auction, they need to pay a 10% deposit on the day and find the rest of the money within 28 days. Realistically, there’s no chance that a mainstream lender would be able to help. But bridging lenders are sufficiently nimble that we can get that funding in place within that tight timescale, and at a price that works for buyers.

Another change has been the significant increase in the number of players in the market. This isn’t simply a niche area any more – we have big names and respected challenger banks making a play for the short-term finance space too, recognising its utility as an important area of the mortgage world.

That competition hasn’t just kept interest rates competitive either. It is forcing lenders to innovate to stand out from the pack, forcing us to look long and hard at exactly how our products are designed and where niche areas within bridging exist which can be helped with a more original loan.

At LendInvest, for example, we have developed a suite of bridging loan products specially designed to meet the differing needs of different borrowers, whether they are buying at an auction, applying for planning permission, looking for refurbishment finance or nearing the end of a project and looking to free up cash flow before the end product is sold.

For a long time, lenders relied on a one-size-fits-all approach, but in today’s competitive market that simply won’t cut it. You need to have a product range that meets the exact needs of your borrowers.

That means moving beyond traditional bridging too; some lenders have brought their expertise into the development finance sphere. Others have seen the opportunities presented by limited company buy-to-let, which has quickly become an integral product for property investors, accounting for an increasing number of all buy-to-let applications in the first quarter of the year, according to Mortgages for Business.

There is still much to do, though. While the sector has grown significantly over the last couple of years, it could still do far more. Intermediaries remain a crucial asset in delivering finance to our borrowers, but the numbers of advisers active in the market remains small. It is crucial that all lenders do more to educate brokers on how short-term finance can deliver for their clients, and that the days of being a loan of last resort are long behind us.

The short-term finance market is in rude health. But it would be a mistake to think it has peaked, that there is no further room for growth. However, it is up to lenders to take a more proactive approach to ensure it continues to grow – now is not the time to rest on our laurels.