Like most areas of the mortgage market, bridging has barely paused for breath since the start of the year. Brokers and lenders report increasing demand for short-term lending for a range of purposes among homebuyers and property investors.
This demand has been confirmed by the latest lending data from the Association of Short Term Lenders (ASTL), which found that applications achieved £7.49bn in the first quarter (Q1) of 2021, an increase of more than 25.5% on the same period in 2020 and 12% higher than in Q4 2020. In fact, £7.49bn represents the second-highest quarterly applications value on record, with the top quarter recorded in Q3 2020, which included pent-up activity at the end of the first national lockdown.
A recent trend is that, while application numbers have increased, the value of completions remains steady. Completions in Q1 2021 totalled £900m, down 1.9% on Q4 2020 but up 10.7% year on year. It means that, on average, it takes more than £7-worth of bridging applications submitted to complete £1.
It seems this low conversion rate has been exacerbated by the pandemic, but it was an emerging trend way before Covid. Across the whole of 2020 there were £25.82bn of applications, but only £2.88bn of completions. In 2019, we recorded £23.19bn of applications and £3.99bn of completions. And, in 2018, there were £21.46bn of applications and £4.05bn of completions.
Intrinsic link
Speaking to lenders and intermediaries, there are two main reasons for the low application-to-completion conversion. First, brokers are sending one application to multiple lenders to find at least one that sticks; second, the average time from application to completion is increasing. And these two things are intrinsically linked.
Bridging finance is a short-term loan, so the longer it takes to complete, the more likely it is that the original requirement for the loan will no longer be necessary. Hence an increase in average completion times will naturally lead to more loans falling through.
This increase in completion times is rarely caused by lenders but often sits with delays in accessing the correct information. However, lender turnaround times are not helped if lenders are inundated by speculative applications. Thorough research is an important part of any advice process but it’s more efficient for everyone if this takes place in advance of application.
Brokers have a duty to explore all the options but lenders do not want an unnecessary number of applications that don’t move to completion. By reviewing working practices, we could provide greater certainty of terms earlier in the process. This would create a more efficient model, reduce processing times and cut costs.
Another consideration is the disclosure of intermediary commissions to customers. The legal outcome of a recent case makes it clear that, if a lender has paid a commission to a broker that has not been disclosed to the borrower, that lender is more at risk of the entire loan being set aside. This particularly affects unregulated lenders that are not required to disclose commission and for whom there may sensibly be a requirement to update processes and documents.
At the ASTL, we believe this matter is very important. We are working with our members to raise awareness and are investigating the introduction of a standard minimum level of ‘lender to consumer’ fee disclosure for all our members at the earliest stage in the process.
Vic Jannels is chief executive of the Association of Short Term Lenders
