2014 has been quite a year - mainstream lending looks like it will increase by almost 20% from £176billion last year to £208billion this year, if the CML forecasts are correct.
Meanwhile the bridging market has written more than £2billion in the 12months up to September this year according to ASTL member figures. Expected growth in this sector is now 42% this year, so it looks like bridging will exceed 10% of mainstream market in volumes written by ASTL members alone.
The first half of 2014 took the market by storm, accelerating at a rate not seen since before the credit crunch. This acceleration had started at the end of last year when Hope Capital alone experienced a 1100% rise in business over the three years since we were founded. Deal flow remains high even as we reach the end of the year and growth in bridging continues to outstrip that of the general mortgage market.
Much of the growth in the bridging market was stimulated by the lack of mainstream lending as criteria remained tight and businesses in particular needed to look for other forms of funding to raise the money they needed to grow.
The biggest thing to affect the general mortgage market and all regulated lending this year has been the MMR with new affordability tests and stress testing having a real impact on the ability of some people to get loans secured on their property. Following on from five years when mainstream lenders have chosen only to take prime customers, this has left many people without the ability to buy property.
The FCA expressed a concern at the ASTL conference in September that the bridging market had been growing as potential homeowners looked to take out a succession of short term loans having failed the affordability tests of the mainstream lenders. I do not believe that this is true or even particularly possible however. All responsible bridging lenders look for a clear exit route after six, nine or twelve months. If the borrower does not have the ability to either sell the property or refinance it then it would be nonsensical for any bridging lender to touch it.
There are two areas that I believe that have really contributed to the growth of bridging lending, those are business loans and loans to property investors. This year in particular has also seen a real return of property investors and developers. There has been a real resurgence in people taking advantage of the upswing in property prices. Many of the investors that Hope Capital deals with are buying properties that they want to either refurbish for resale or let, others are looking at change of use.
Businesses meanwhile also look at bridging as a short term solution to the banks unwillingness to lend. Securing finance on their property to enable them to take advantage of deals and acquisitions can pay off many times over because of the quick turnaround times that most bridging lenders can offer and the ability that this gives them to capitalise on opportunities that require immediate access to funds.
Looking forward to next year I think that we will see regulation have a bigger effect even for non-regulated lenders. It is likely that we will see the standardisation and regulation of first and second charge loans take effect even before the European Mortgage Credit Directive is brought in, in April 2016. More companies are therefore likely to become regulated as the reach of regulation extends further into other areas. This will have an effect on companies that are not regulated also, altering the type of business that they do or the way that it’s conducted bringing it either more in line with regulation or more under the radar, depending on the respectability of the company.
The outlook though I think is good. Despite the uncertain global conditions, the UK is still growing more strongly than most of the other G7 countries with 3% growth looking likely this year. Demand remains strong and investment levels continue to grow fuelling further growth, so, for bridging lending in particular, the outlook is very positive.
