2013 was a busy year for the bridging market; new products, new funding and new lenders.
But with the Mortgage Market Review looming and a less than buoyant economy, what will 2014 bring and will funders still be eager to invest in the market?
Loan Introducer catches up with Benson Hersch, chief executive of the Association of Short-Term Lenders, to find out what the next twelve months have in store for the bridging sector and why he thinks the popularity of the second charge market will not hinder the bridging sector’s growth.
What do you think 2014 has in store for the bridging sector in terms of lending volumes?
Everybody is very positive about the forthcoming year and I feel that volumes will be up. The bridging market grew significantly in 2013 and looks set to continue to do so right up until the election in 2015. Any new government will have to get tackle the UK’s debt mountain and this may mean increasing interest rates. This will definitely slow down the rise in property prices.
Figures from ASTL members as at September show the value of bridging loan applications rose 42% year on year while the value of loans written increased by 40% and I expect to see these numbers exceeded this year.
How do you think the MMR and the European Mortgage Directive will change the sector?
Both the MMR and the European Mortgage Directive currently only affect lenders who do regulated business, which excludes a fair proportion of the bridging market. The UK government has managed to secure opt-outs for the BTL mortgage market.
In light of the new MMR restrictions; many bridging lenders will offer only non-advised business; and leave the provision of advice to brokers. As a result, most bridging lenders will continue to put all of their business through intermediaries, but there will be more pressure for the business submitted to be accurate and for brokers to know their stuff.
There were a lot of product changes/improvements from bridging lenders in 2013, with many enhancing commissions, improving rates and launching products such as Bridge to Let – what do you expect or what would you want to see in 2014?
I expect there to be more changes in 2014, as lenders respond to market demands. Many bridging lenders have other strings to their bow, and I’m sure that innovations and improvements will be forthcoming.
Many of the larger lenders are now becoming wider ranging property lenders and bridging is just one string to their bow; for example, a few of the bigger lenders are now providing second charge secured lending over a three to five years period. Some also provide medium term lending for property investors.
The sector has been known for offering fast and expensive loans – but with an increasing number of lenders offering deals of up to five years and reducing rates – do you think the bridging sector is losing this reputation somewhat?
People unfamiliar with bridging still think that it’s expensive lending of last resort but an increasing number of people – both advisers and borrowers – are starting to realise that actually bridging plays a very valuable role as a source of short-term finance. Bridging meets a need for a whole range of borrowers from property developers, businesses requiring temporary funding; and individuals buying a new house before their old one has sold, most of which the mainstream mortgage lenders wouldn’t touch.
Rates have come down but still remain relatively high compared to ‘perfect fit’ first charge mortgages, but as is the case with all lending, bridging lenders price for risk. The issue is not so much of speed (although many people benefit by getting their funds within a couple of weeks or even in a couple of days), but of the lack of significantly cheaper or more dependable alternatives. Knowing the funds will available when you need them is hugely valuable to many borrowers.
I think that standards amongst bridging lenders have risen – and have been seen to have risen – which has significantly helped the market’s reputation, and the ASTL has played its part in that with introduction of our Code of Conduct and Value Charter that every member agrees to abide by.
This improved reputation is evidenced in the growing number of people who are actively turning to bridging loans, and while it is still a small niche market compared to the mainstream mortgage market, the value of bridging loan applications rose 42% last year.
A number of bridging lenders received funding boosts in 2013 – do you expect to see new funding streams for lending throughout 2014? And where do you think these will come from?
Funding is being provided from several sources, from high net worth individuals, family offices, hedge funds and banks. With the prevailing low-interest rate environment likely to remain in place for at least the current year, funding of bridging lenders is seen as an attractive proposition. Interest from banks is likely to increase.
This year I think that we will see a few larger lenders enter the funding market, but I think that most of the new entrants will come from HNW people looking for higher returns.
The secured loan industry has gained considerable ground during the last twelve months – is there any concern that this might detract from some of the bridging market’s popularity?
The secured loan industry is different to bridging and plays a different role. Loans tend to be smaller and are generally not used for property purchases. There are different default rates, the loans tend to suit different needs and requirements and therefore attract different types of borrower. Nevertheless, the principles of responsible underwriting remain the same, and several bridging lenders have dipped their toes into this market. I think that the secured loan market is complementary to, rather than in competition with, the bridging market.
What are the main challenges facing the ASTL as a trade organisation at the moment?
Our main challenge is to get all responsible bridging lenders to join the ASTL as members so that we can continue to promote the following objectives: Our aim is to carry on pushing up standards and the reputation of the industry; and to positively influence the regulatory bodies.
We aim to continue our positive and cooperative relationship with the FCA, covering everything that affects the bridging sector including MMR, Capital Adequacy Rules, retained interest and the imminent move of the regulation of second charge loans from the OFT to the FCA.
The more members we have, the more influence we have and a positive relationship with the FCA can only benefit everybody in the bridging industry.
Who has had the most influence on your career?
My father, and the standards he set me, has always been the biggest influence on my life. When making decisions, I often consider what he would have done. I have probably been more adventurous than he would have been, but he provided a strong ethical backbone which colours my decisions. A possible drawback is that it has made me less understanding about people who deliberately break the rules and hope to get away with it.
Which three items could you not live without and why?
My computer/smartphone/tablet (interchangeable) as this gives me access to all the information I need and is my lifeline to the rest of the world. My coffee machine to keep me awake; and my bedside light, so that I can read at night (possibly because I’ve had too much coffee!)