Rather than being a straightforward short-term market, bridging is now two separate markets: short-term residential loans to consumers that fall into the regulated sector; and short-term loans to professionals looking at commercial opportunities in the unregulated sector.
Fincorp believes there must be a stronger division drawn between the two in the same way that residential mortgages and buy-to-let are separated.
Matthew Anderson, director at Fincorp, says this shift reflects the fact that the term “bridging” doesn’t refer to the type of lending it used to.
Anderson said:
“There’s regulated lending on a short term basis which necessarily has more onerous underwriting criteria. This is often done by lenders who have only been doing bridging for a few years and perhaps have more of a background in mainstream lending.
"And we have short term lending to professionals in the commercial sector of the market who are developing properties that ultimately will end up in the residential market."
Anderson said both types of loan have a place in the market and welcomed the increasing competition bridging has experienced over the past few years.
But he added: "It's important we don't confuse these two very different sorts of customer and end up driving the availability of loans to professionals into the ground."
The bridging lender’s claim follows Mel Fordham, chief executive of broker Centrado, suggesting bridging lenders were starting to “act more like the mainstream as lenders start to apply a regulated ethos to what they do”.
Fordham told Bridging Introducer:
“We have an enquiry at 55% loan to value for £600,000 which has turned into a ‘30 item’ request list from the lender; so they will want to see six month personal bank statements, they want to see the payment profile for a car loan the customer has taken out and pretty much the details of his entire financial life.”
Anderson said this example highlighted the need for more accurate division of the two sides of the short-term sector.
He said:
“It comes back to how we understand what bridging is. The need for protracted underwriting is reminiscent of the regulated and consumer mortgage market.
“In the short-term sector where we are lending to property professionals looking at development opportunities, putting the borrower under a microscope like this is excessive. A different, just as thorough, but faster, type of underwriting is needed. But some lenders who offer mainstream mortgages or regulated consumer bridging loans are lumping the commercial part of the market in with residential loans.”
Fordham suggested that the more onerous underwriting was a direct result of more bridging lenders becoming regulated and the regulator therefore looking more closely at their commercial business and the unregulated loans they are writing.
Anderson said:
"All lenders have to be careful about who they are lending to and the quality of deals they approve – something we take very seriously. But demanding an inside trouser leg measurement from professional property developers risks undermining the value short-term finance can offer.
"Speed has always been critical in bridging and if you have the experience and correct market knowledge, underwriting does not have to be so tick box and lengthy. Just because it isn't tick box doesn't mean it isn't good quality. There seems to be a perception that weeks of underwriting mean a lender has done a better job. That's not how we see it - after 25 years in the market we know how to underwrite a loan quickly and properly.”
