Will the bridging rate war be sustainable if interest rates go up?

Bridging & Commercial recently spoke to a number of specialist lenders to find out whether the current bridging rate war would be sustainable if interest rates went up.

Rajiv Nathwani, director of Quivira Capital, said: “…The rate war is certainly not sustainable. 

“Institutional investors will want their returns to increase, which will squeeze margins and these costs will be passed on. 

“As rates rise, so will bridging costs. 

“I think this is going to be a good thing for the market, because provision of service will become more and more important. 

“There has been a race to the bottom of late, just in terms of rates and LTV, and it’s taken a lot of common sense out of the bridging market. 

“There is a lot of lending going on that probably shouldn’t be, because there’s a rush to try to utilise money and secure yield. 

“As rates start to go up, service will become the most important thing, while more common sense in underwriting will also be key, rather than being a box-ticking exercise. 

“Hopefully, this will see bridging go back to what it should be.”

Stuart Law, CEO at Assetz Capital – who said the lender fully expects the MPC to raise rates to 0.5% in November – added: “Many bridging lenders are competing using bank funding as part of their capital stack and – given this will usually be priced from Libor – we expect to see them come under upward rate pressure even before the Bank of England meeting in November.

“Nonetheless, we do not think that rates will rise much further until it can be seen if Brexit has been a success, and even then, that will likely be some time away. 

“If that happens, then it will certainly push up bridging rates for most lenders, however, some lenders are not bank funded and may be resilient to this.”

Meanwhile, Jonathan Sealey, CEO of Hope Capital, claimed that rates were not the most important metric when judging the trajectory of the bridging market.

“More often than not, rates are the first factor borrowers think of, although this should not be their only focus when choosing a bridging provider,” said Jonathan. 

“When addressing whether funding lenders will be impacted, the most important factor to consider is how a bridging lender is funded and where the funds are actually coming from. 

“For those that are externally funded, this could mean that even a small rate rise could be passed on through external funding lines. 

“Therefore, it is possible that those lenders that are fuelled by the banks could be required to increase the interest rates they charge as a result.” 

Narinder Khattoare, group operations director at Kuflink Bridging, added: “Regardless of where the base rate goes, certain lenders in any sector will always want to lead on rate as their preferred strategy for acquisition.

“It is more a question of being the cheapest whatever the base rate or the competition from their peers. 

“So, it will continue, just with a higher starting point.”