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16 | Bridging
Short term
looks positive
Alan Margolis, chief executive of Cheval Bridging Finance,
reports on how the credit crunch has impacted the
bridging market and says it is bouncing back in the face of
a more positive economic outlook
he credit crunch has had a appeared a very attractive way to make easy number of auction purchasers, traditionally
T
dramatic impact on the short money. During 2007 and into 2008 there regular users of bridging finance given the
term lending sector. To assess seemed to be a new entrant into the market tight timescales involved, dwindled markedly.
this impact it is worth recapping every other month. Property market activity nose dived affecting
briefly the mood and issues that This period was dominated by ferocious many customers’ plans to repay their loans by
were dominating the short term competition. Brokers were able to shop around selling their property. This all resulted in
sector in the years leading up to and lenders were put under enormous pressure tumbling asset prices leaving lenders exposed
March 2008. to bend their rules and criteria for fear of to losses.
Short term lending had been building up a losing business and reputation to rivals. To The world had completely changed and it
gentle momentum in the late 90s, evolving feed the appetite of securitisation, same day was a mess. However, it can now be seen that
gradually from private individuals and firms of transactions (closed bridges) allowed investors many of the established short term lenders
solicitors to dedicated established specialists to acquire properties, often large portfolios, took similar steps to adapt. They slashed
such as Cheval. Loan book growth was steady without putting in very much, if any, of their overheads, reduced advertising and introduced
and unspectacular. own money – all they required were optimistic much more conservative lending criteria. All
From mid 2003 the sector began to benefit valuations and so called discounts. It was a concentrated on their back book and in
from the boom in the availability of credit. All heady and, with hindsight, reckless time. particular those loans written at the very apex
of a sudden it seemed that literally almost of the property boom.
anyone could obtain a mortgage. This fact was Collapse For others, their short term lending
absolutely vital to the resultant spectacular Timing is of course everything. The short term ambitions were at an end. For a variety of
growth of short term lending, because short sector is inextricably connected to the reasons including loss of bank funding lines,
term lenders depend on borrowers being able mainstream mortgage market. The spectacular loss of confidence and sheer lack of business
to redeem their loans. The easier it is for collapse of confidence and asset prices in 2008 activity many lenders left the market.
people to obtain refinance – or of course sell hit the short term lending sector just as hard as
their property, then theoretically at least, the the rest of the mortgage industry. Positive
safer a loan is for the short term lender who Almost overnight the bridging sector was hit So where is the short term sector today and
seeks a “churning” of their loan book. by multiple challenges. Buy-to-let mortgages, a what does it have to offer brokers and
To many outsiders, including the larger key driver of short term lending, disappeared borrowers? As I hope you will see, the answer
institutions that provide funding to the short for a while. The securitisation-driven same day is actually quite positive.
term lenders, the short term sector must have transactions disappeared altogether. The Firstly, despite all the dramatic headlines
Novemer 2009 Mortgage Introducer www.mortgageintroducer.com
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