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Could further rate rises affect the bridging market?

After almost a decade with static, low rate environment, November 2017 saw the first rate rise in 11 years. There was much talk at the time that it could be followed by several more. Then nothing until last month, where a 0.25% rise saw the bank rate hit 0.75%, the highest it has been since 2009.

The Bank of England has indicated that it will be followed with at least one more rise before tFhe end of the year, maybe two. So, we are finally seeing a shift to a rate rise environment, a bit of shock after the static situation we have all been familiar with for so long.

November’s rise – the first many borrowers will have ever seen – coupled with this latest rise and the fact there is still uncertainty over Brexit, means we are in uncharted territory.

The one thing we do know, is that rates are rising, but how far and by how much remains unknown. Another unknown is how these recent and potential rate rises will affect the bridging market.

Generally speaking, while rate rises can affect the short-term lending market, it is less rate sensitive than the mainstream lending market. This is down to two main reasons. Firstly, due to their short-term nature, the rates of a bridging loan will generally not rise during the loan term, and secondly, because bridging lenders are funded differently from mainstream lenders.

Some bridging lenders are reliant on external funding, while others like Hope Capital, are principal lenders, which means they are privately funded, and therefore not directly affected by BoE rate rises.

In fact, as bridging becomes more accepted as a viable alternative to high street lenders, there is more competition in the market which has actually forced rates down. However, rates do vary quite widely between lenders because cases are taken on an individual basis, so rates are agreed depending on a number of factors including the speed at which the borrower needs to loan in place, how flexible the lender needs to be and the risk involved.

The main effect of rate rises on the bridging market, therefore, is exit routes. Borrowers who are looking to refinance as their exit route will be affected by higher rates on the longer-term finance deals that they go onto after the bridging loan. Therefore, bridging lenders and brokers need to be aware that if rates rise, it may affect the borrowers’ exit strategy and therefore their ability to repay the loan, which may need to be taken into account when assessing the risk.

Even if selling the property is the customer’s exit strategy, this still may be affected by rising rates because higher rates tend to slow property price growth.

However, assuming rates don’t rise significantly, I think the impact of the recent rises on the bridging industry to be fairly minimal. At Hope Capital, thanks to our position as a principal lender, we will continue to look at every case on an individual basis, whether there is a rate rise or not.

Source: Mortgage Introducer

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Bridging completions rise by nearly 30%

Annual bridging completions are now close to £3.8bn after rising by 29.9% from Q4 2017 to Q1 2018, data from the Association of Short Term Lenders has found.

The value of loans written in the first quarter of 2018 increased by 32.5% compared to the same quarter last year.

Payam Azadi, director at Niche Advice, said: “It shows bridging is here to stay, is growing and will just continue to grow.

“Any brokers not within the sector should certainly be looking at it more closely and aligning themselves with experts within that market. A good place to start is speaking to some of the packagers and master brokers experts.”

Total loan books are continuing to climb, with a rise of 13.1% compared to Q4 2017. Compared to the end of Q1 2017, the value of loan books rose by 35.6%, to £4.2bn.

Benson Hersch, chief executive of the ASTL, said: “Our figures highlight the fact that the bridging finance industry is in good shape and is ready and willing to meet the challenges and opportunities of today’s market.

“The bridging sector is now a well-established part of the property finance market and, barring any black swans, should continue to grow.”

The pace of increases in applications reversed recent declines and increased by 28.9% compared to a decrease of 11% in Q4 2017. On an annual basis, applications are up by 23.2%, making up a total of £19.7bn.

Although applications do tend to be unreliable indicators and are dependent on how many lenders are offered the same deals, this is still a staggeringly large figure.

These figures are taken from the responses from ASTL members, which include most of the key lenders in the bridging market.

Source: Mortgage Introducer

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Bridging market: Six predictions for 2018

The bridging market enjoyed a solid performance last year, after achieving gross annual lending of £4.7bn in Q3 2017, according to a recent study.

The West One Bridging Index report found that gross annualised lending increased from £4.3bn in June to exceed the peak of 2016’s pre-EU referendum high of £4.4bn, with the figure up 10% on the same period in 2016.

What do we expect to see from the bridging market in 2018?

Richard Tugwell, director at Together, said: “The Intermediary Mortgage Lenders Association (IMLA) described in its October white paper a ‘rebirth’ for the specialist lending market, following its impressive growth, particularly in the bridging finance sector.

“We fully expect this situation to continue throughout 2018, as high street finance providers shuffle their propositions, meaning an even greater number of borrowers will be unable to access the short-term funding they need.

“This growing demand will provide greater opportunities for specialist lenders like Together to highlight a more tailored service – relying on personal decisions, rather than a computerised approach – to deliver the best outcome for the customer.

“In 2018, we will be forging even stronger relationships with brokers so that – as rates start to move and customers’ deals come to an end – we will be able to help even more who are looking for bridging finance, but who may not fit mainstream criteria.”

Paresh Raja, CEO at Market Financial Solutions, believed that 2018 represented a significant opportunity for bridging to further establish itself as an attractive funding option.

“As clarification is obtained as to what Brexit will mean for the UK, it is foreseeable that greater confidence will return to investors.

“Subsequently, as 2018 progresses, the housing industry could once again return to more substantial patterns of growth, which may spark a rise in real estate investment [and], therefore, bridging demand.

“Apart from the South East and London areas, demand for bridging will also rise in other cities such as Manchester, Liverpool, Leeds and Birmingham, which continued to perform extremely well in 2017 and property investors will continue to tap into this sustainable growth.”

Gavin Diamond, commercial director of bridging at United Trust Bank (UTB), added: “The bridging market continues to go from strength to strength, with UTB seeing a record number of cases in 2017.

“2018 is already off to a busy start and there’s nothing to suggest there will be any let up in activity in the short-to-medium term at least.”

Jonathan Sealey, CEO at Hope Capital, believed that flexibility would be key for bridging this year and there was no room in the market for the ‘one-size-fits-all’ approach.

“Lenders need to be flexible and treat every borrower in accordance with their individual needs.

“The prospects for lenders from developers seeking finance will increase as the government moves on its plans to get the country building.

“The land that has been sitting waiting for development will have to [be] built upon, which means developers may need funding sooner than they might have initially thought.

“Short-term finance could come into its own to give developers room to move from one project to another.

“We saw an increase in applications at the end of 2017 for loans for renovation and refurbishment.

“This is a trend that I can see continuing this year as more people – especially landlords – look to improve their current position and increase the value of their existing properties.”

Narinder Khattoare, CEO at Kuflink Bridging, commented: “The bridging market is coming off a hugely successful 2017 and pipeline business going into January is the best that we at Kuflink have ever seen.

“Certainly, industry figures from a variety of sources show the continuing growth of the sector and I expect that trend to continue in 2018.

“Development and refurbishment loans will be growth areas this year and with the news in the cabinet reshuffle that housing – and by extension the property market – is now represented at cabinet level, I am confident that the chancellor’s plan to make housebuilding a priority will actually bear fruit.

“This can only lead to greater opportunities for advisers with clients associated with the building trade over the next few years.”

Allegra Penny, relationship manager at Funding 365, also expected the bridging market to continue its growth in 2018.

“I predict continued growth in investment outside of London as stamp duty continues to bite, but I would imagine this would be at a slow rate.

“Now we have moved into the second phase of Brexit, there is still much uncertainty and until we know more, this will continue to have an adverse impact on the property market.

“Finally, moving into 2018, I think we will see continued innovation and competitive offerings within the industry and at Funding 365.”

Source: Bridging and Commercial

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Bridging sector grows in Q3

The UK’s bridging sector continued its healthy growth of 2017 with another strong quarter’s performance, yielding a new high of £4.7bn in the year to Q3, West One’s Bridging Index showed.

The latest edition of the quarterly report revealed that gross annualised lending increased from £4.3bn in June to exceed 2016’s pre-EU Referendum high of £4.4bn.

The bridging sector has recovered from the slump in the Q3 of 2016 that followed the referendum result.

Marie Grundy, sales director of West One, said: “2017 has proven to be a strong year for bridging finance, with a clear return to form after the post-Referendum turbulence this time last year.

“Seeing further robust new business performance in a quarter that includes the typically-quieter summer holiday period is very encouraging.

“The wider property and property finance markets have flattened against continued political uncertainty due to slow progress negotiating Brexit, and the prospect of interest base rate rises finally arriving.

“This new market high therefore reflects the underlying strength of bridging.

She added: “We believe there is still that slack in the market and expect that the bridging market will continue to this pattern of solid growth, despite some slowing in the housing market.

“With pockets of growth outside London and the South East, we anticipate seeing more of that growth regionally.”

Trends in the bridging market

The emergent trend in the first half of 2017 of smaller transaction sizes has continued through Q3.

Average loan sizes dipped under £600,000 compared to averages in excess of £900,000 at the same time last year.

There were less large transactions coming to market, reflecting the relatively depressed market for high-end properties with values over £1m, especially in London.

s performance figures from different sources pointed to more upbeat property markets in some regional hotspots such as the East Midlands or Greater Manchester, it seems property investors are focusing on deals in those regions, with typically smaller ticket sizes.

The regional picture

Between actual residential property and property finance data, and forward-looking expectations data, varying patterns emerge.

Nationwide and RICS found the wider South East of England has also become more subdued in price growth, with a markedly negative outlook.

But UK Finance’s regional mortgage data showed mortgage lending in the London region at 10% more than that of Q3 2016.

Data for house prices identify both East and West Midlands as hotspots for annual price growth, alongside the South West, where supply is highly constrained.

The wider South East region is still showing growth, albeit at a slowing rate.

Savills research identified Midlands locations like Birmingham City, Leicester-Nottingham and Northampton and pockets in Scotland like central Glasgow and the Galashiels area of Edinburgh commuter hinterland.

With central Manchester also shining a light for the North West of England, this indicates the opportunities that investors are starting to exploit, where they know the local market.

Taking forward-looking sentiment data into account, other regions came to the fore, suggesting further scope for agile investors to grasp emerging opportunities.

September’s RICS residential market survey of members pointed to likely buoyancy in the North West, Scotland and Wales, with positive Q3 sentiment across a range of measures from price expectations to new enquiries and listings. This suggested positive market conditions will continue in the East Midlands and South West.

Bridging interest rates

Interest rates in Q3 recovered slightly from Q2’s low of 0.96%, returning to just above 1% per month.

With Bank of England base rate changes widely expected for some months ahead of the 2nd November 0.25% announcement, it is likely that the market had already begun to factor this shift in.

The report predicted a further rise in bridging rates during Q4.

Danny Waters, chief executive of Enra Group, said: “The bridging sector has performed well during Q3, despite the backdrop of concern around the progress of Brexit negotiations, and economic indicators pointing to both a slower economy and to the interest rate rise that ultimately came in November.

“Whatever happens next, the industry must continue to adapt to conditions, and provide the diverse and flexible funding options that property professionals need, so they can take advantage of the changing, regional landscape that we are seeing develop.”

Source: Mortgage Introducer