Bridging loan sector fills finance gaps

Q1 showed a rise in short term lending as the bridging loan sector fills the gap left by the banks

Members of the Association of Short Term Lenders advanced £288m of loans in the first quarter, up 1.8 per cent on the previous quarter’s total of £283m.

In the quarter, ASTL members received applications for £1.1bn worth of lending, down from £1.3bn in the previous quarter.

The total loan book at the end of the period was worth £1.1bn.

ASTL chief executive Benson Hersch says: “The figures reflect the steady increase I expected revealing the ongoing need for bridging finance. This has not decreased, despite pressure by government and promises by mainstream banks to lend more, as a result, short term loans are filling the gaps in many instances.

“After a significant rise at the end of last year, the current quarter has seen steady demand and I expect the next quarter’s figures, to continue to show a slow but steady improvement.”

The ASTL’s figures are produced and published quarterly and measure the lending of all of its members.

The figures come on the back of research from United Trust Bank last month which showed that nine out of 10 brokers believe the bridging sector has become less niche over the past 12 months. UTB surveyed 118 bridging finance brokers.

Speaking at the time, UTB head of bridging Alan Margolis said: “As borrowers have found their usual routes to credit closed off, brokers are considering bridging finance as a possible short term lending solution in more and more cases.”

Bridging Loan brokers image improving

Recent surveys of Bridging Loan brokers reveal that 91% believe awareness of the benefits and availability of bridging finance as a short term finance option has increased over the last 12 months.

56% of those surveyed also believe that the image of the industry for bridging loans has improved over the last 12 months. lead broker Michael Kennedy says, “Bridging loans provide flexible solutions to borrowers various circumstances and financial needs. We are able to tailor our bridging finance packages to suit the varied requirements and individual circumstances of each and every client.”

Used correctly, bridging finance solutions enable clients to achieve their goals with regards to short term finance needs in their buy to let or other forms of property purchase needs.

“As usual routes to finance have been closed to borrowers over the last few years, bridging finance is now considered to be an acceptable and reliable source of short term funding for projects and purchases.”


The pros and cons of bridging loans

Flexibility, rapid fund allocation and a bespoke approach are key differentiation from the high street.

Flexibility, rapid fund allocation and a bespoke approach are key differentiators between the high street and specialist short-term lenders.

“Short-term finance companies will look far more closely at a borrower’s circumstances,” declares Michael Kennedy, CEO of Only Bridging Loans.

“Decisions do not hinge on computer-generated credit scores and rigid, inflexible criteria.”

Although they are still mainly used by professional, more experienced property investors and landlords, bridging loans have become more mainstream in recent years given the excessive caution shown by high street lenders.

Danny Waters, CEO of Enterprise Finance, adds that the strongest quality of the bridging loan is its speed. “In some cases, loans of several million pounds have been delivered in as little as 48 hours.”

But as David Kinane, partner at Paxton Private Finance, points out, while bridging loans are designed to provide an immediate solution and so tend to complete more quickly and typically have less onerous borrower underwriting criteria, this speed and convenience comes at a price.

That being said – and although they continue to be more expensive than standard term mortgages and other sources of finance – bridging loans these days are much cheaper than they were pre-crash.

“Pre-crash, bridges were typically 1.5 per cent per month, but these days they can be half that,” notes Mr Waters.

He adds: “With bridging loans, it is less about the cost than the speed with which the loans can be arranged. The interest rates, which can be off-putting to the uninitiated, are often hypothetical as bridging loans are rarely held for a year.”

Mr Samuels admits the main danger in entering into a bridging loan is a client receives poor advice and does not properly understand the terms of the loan nor have an appropriate exit in place.

“Where brokers need to be careful,” advises Rob Jupp, chief executive officer of Brightstar Financial, “is with clients who are desperate for finance and think bridging loans are the answer.

“A bridging loan is a short-term expedient only and will be very expensive if used as a substitute for longer term funding. The main issue is allowing a client to get into a situation where the relatively high cost of borrowing overcomes the flexibility and immediacy of the bridging facility.”

In a nutshell, these loans are a very useful means of raising money quickly for any purpose, provided there is only a short-term need.