According to the Bridging Trends data for Q2 2022, average short-term lending rates continue to fall, from 0.71% in Q1 to 0.69%; a long-running trend, from a slow progression over the decades to a sharp drop in recent years as the market increased in competitiveness, size and accessibility.

The question is, at what point will short-term finance rates start to rise again?

Bridging lenders are facing a dilemma. Over the years, attractive rates have brought a wider range of consumers into the market, going some way to dispel fears around this traditionally more expensive form of finance, and enabling lenders to remain competitive with those banks that, from time to time, also offer this form of finance.

Flexibility and sustainability will help the sector

However, inflation and rising costs could make these margins untenable, meaning rates may have to face a considerable uptick, potentially undoing some of the goodwill earned over the years.

Whether it’s the need for new funding lines, a growing urge to support the financial wellbeing of their own people, or increased overheads as costs rise across the board, there are too many pressures to suggest bridging rates won’t have to follow the mainstream market and start to rise.

How will short-term lenders balance these pressures with the need to remain attractive to borrowers?

Changing context

Inflation is only part of the picture. With the rising cost of living, people’s finances will become more complex, whether a change of job or added income stream, right through to credit blips and potential debt consolidation.

There remains widespread misinformation among both consumers and mainstream mortgage market participants

Meanwhile, the ever-present question of exit routes hangs heavy over the market.

Responsible, sustainable bridging hinges on a clear and achievable exit but, in times of turmoil, change can happen quickly. A sudden shift in one buyer’s circumstances could jeopardise a whole chain, while a change in tenant demand or property prices could leave a developer short of those all-important final sales.

A complex economic environment may necessitate some changes for lenders — increased caution when underwriting, a reassessment of risk, or higher contingency margins, for example — and there will be more cases where lending simply isn’t deemed viable.

But the solutions are already baked in. Short-term finance is driven by human underwriting and common sense. Scrupulous lenders will make sure to keep an eye on their clients and help them navigate any setbacks.

How will short-term lenders balance these pressures with the need to remain attractive to borrowers?

For borrowers unable to secure finance, in the best-case scenario the right lender and broker will work to shore up the deal and make it more palatable; in the worst, they at least avoid taking on a potentially expensive and unmanageable loan. This balance of flexibility and sustainability will help the sector continue to thrive.

As global events during the pandemic wrought havoc with the house purchase process, and the stamp duty holiday caused a stampede, many turned to short-term finance . Now, with price growth seeming to plateau but no guarantee as to when rates may do the same, buyers are eager to find a property and avoid delays.

The solutions are already baked in. Short-term finance is driven by human underwriting and common sense

In turbulent times, there will always be a place for short-term finance. But this market still faces a considerable challenge: there remains widespread misinformation among both consumers and mainstream mortgage market participants.

ASTL’s mission is to build our understanding of the problem with extensive research, to be released at our annual conference in October.

 Vic Jannels is chief executive of the Association of Short-Term Lenders