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07 August 2017

Managing risk in today’s bridging market

Although the mortgage market has had an unsettled year so far, we are seeing a rise in bridging loan volumes, with gross annual bridging lending in the UK increasing to £4.6bn in April. The size of the typical bridging loan has also continued to grow over recent years, showing how more property developers are incorporating bridging into their project financing arrangements.

And there’s more good news. Figures from the ASTL’s latest sentiment survey have shown that despite political uncertainty, its members remain positive about their and the sector’s prospects. In other words, Brexit hasn’t beat bridging, and what’s more, 70% think their volumes will increase over the next six months. Unsurprisingly, according to the latest bridging trends, in Q1 this year mortgage delays were still the main reason for borrowers taking out a bridging loan, closely followed by refurbishments.

Despite the raft of political and economic changes, the most important consideration for lenders remains the same. The speed of the transactions and a viable and clearly defined exit strategy, be that through the sale of a property or refinance, are crucial in all bridging loan applications.

There are now more than 200 lenders in the short term lending market. With so much competition and due to the ever increasing variety of bridging products, matching the borrower to the bridge is more important than ever. The way they are structured, priced and underwritten reflects the many uses of this type of specialist finance. Brokers therefore need to understand why their client needs a bridging loan and the different types of finance that are available.

Bridging is very much based on a trust relationship, so brokers must find a lender that they trust to look after them and their clients. Lenders that truly understand what represents a good risk where bridging finance is concerned will continue to prosper in an active and resilient market. With a solid base of transactions in the bridging market, continued growth is anticipated for the remainder of the year.

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