The bridging market showed remarkable resilience during 2020 as the pandemic brought numerous challenges for lenders: from remaining operational with remote working to liaising with customers on term extensions; and, of course, the enforcement moratorium that had a disproportionate impact on short-term lenders.
Nonetheless, the over-riding story of the second half of the year was one of immense customer appetite, and bridging applications hit their highest level in the third quarter, totalling £7.6bn and representing an increase of 25.7 per cent on the same period in 2019.
Initial signs are that the momentum of demand has carried into the new year and, while it is still early to say if it will be slowed by the third lockdown, there are clear trends emerging where the flexibility of short-term finance is able to provide solutions for customers with increasingly diverse and complex requirements.
Refinancing existing facilities that have either expired or are approaching expiration will continue to be a key part of the market. ASTL member Alternative Bridging Corporation cites a £250,000 facility to refinance an expired bridging loan secured by a first charge on an owner-occupied house in Bristol, where the sale of the property had been delayed due to the pandemic.
High-pressure situations
Another ASTL member, Tuscan Capital, talks of a £2.2m facility it turned around in five weeks to aid a developer client facing expensive forfeit-of-deposit costs. Tuscan says the high-pressure situation occurred after the developer had exchanged contracts for the purchase of a site — complete with residential planning consent for multiple units — in an area of north London.
With completion date looming, and the client facing delays on the finalisation of his existing 20-home residential project in northwest England, it was necessary to refinance the over-running development and to release extra capital to enable the acquisition of the London site to complete. The reason for the over-running development in northwest England was the impact of the first national lockdown and subsequent difficulties in sourcing essential building materials.
Difficulty in sourcing building materials is a trend that is likely to continue well into this year and many schemes will need similar considerations.
Other opportunities will include businesses in need of working capital and regulated bridging finance for extensions and improvements.
Amid these opportunities, lenders will continue to face challenges and will need to tread carefully to ensure they are meeting the demands of brokers and customers in a way that is robust and responsible.
A key consideration is the underwriting of exit routes and, where possible, encouraging customers to consider more than one potential strategy. The property market has been active, but largely among bigger properties, where the stamp duty saving is the greatest.
Similarly, exit via refinance is subject to pressures of the external environment. Term lenders are underwriting with greater scrutiny and options may be limited for businesses with government loans, or borrowers who made use of the payment moratorium.
For brokers, the message is that diligence is required. There will continue to be customer demand for bridging, and lenders with a pragmatic approach to this demand, but applications must be robust and there may be requirements for additional documentation or collateral. However, with the right preparation, positive opportunities remain amid the caution.
Vic Jannels is chief executive of the ASTL
