Bridging In-depth
Intermediaries, agrees with Cohen and believes that the short-term market is already edging towards being more professional. “Anyone operating in today’s
marketplace can’t be one dimensional,” he explains. “They have to look at how they’re able to satisfy the greatest product range. Some lenders will opt to be niche players, others will want broader ability. People see moving in that direction as an opportunity to do business with regulated brokers, which is a competitive differentiator.”
Cohen believes this is how the
market will develop. “I think you’ll see more and more people using bridging when they want to buy while they wait to get more long term finance,” he says. The key is to consider short- term finance as a means to help borrowers access lenders. In the first three months of a deal a short-term lender might charge 1% per month on a light refurbishment product while the borrower does up his kitchen and bathroom. Thereafter, that borrower might be in a position to access better rates from a bigger
“We became regulated as we feel that the whole market will become regulated at some point in the future. There is also a tremendous amount of regulated business out there that we wanted a part of”
A mArket snApshot
the bridging market has felt as though it’s been buzzing in the past four years. Brokers and lenders alike estimate that in 2010 gross short-term lending – including all commercial, residential, secured and short-term buy-to-let lending – was somewhere between £700m and £1.3bn. Of that, best guesses suggest unregulated residential short-term lending makes up roughly £50m to £70m a month while regulated is around £12m per month. that compares to £136bn gross lending in the residential mortgage market annually and £10.4bn in the buy-to-let market. nevertheless bridging offers investors good margin and a relatively fast return on their cash, with most bridging loans lasting a term between one and six months as opposed to the 25 year terms on mainstream residential mortgages. rates range
8 BRIDgIng InTRoDuCER July 2011
from 0.75% a month to around 1.5% a month and loan to values can go up to 90% of the open market value of a property, depending on the lender. traditionally the short-term lending market has been a bit of a cottage industry with lenders ranging from small-time family run shops up to larger and more professionally run businesses. although there has been a disproportionately large amount of noise in the sector since the credit crisis hit, bridging and short-term lending isn’t new. this type of lending has always been around and about and brokers have been making money out of introducing borrowers for at least fifteen years. recently though, a new breed of new lender - including Dragonfly property Finance (formerly called Drawbridge), Omni Capital and precise mortgages – has burst onto the scene with cash to splash. these types of lender, which place themselves at the
lender and a mortgage costing considerably less because the condition and value of a property is improved. Similarly, developers and landlords can use bridging loans to complete projects albeit at higher rates. But in a world where money is tight, thinner margins for a short period are looking more acceptable to commercial property investors who need to keep developments rolling over and business moving.
SmartenIng up Several short-term lenders have made the move to become fully regulated by the Financial Services Authority, meaning they can lend on regulated residential mortgage contracts as well as commercial deals. Increasingly, there is demand from consumers for short-term finance to help them mend their credit payment record or to tide
professional end of the market, are often backed by large institutional investment houses. elliott associates is an american private equity house that backs precise mortgages, Octopus Investments, an investment company that backs Dragonfly, and CVC Capital partners, the Candy Brothers’ private equity fund backs Omni. tiuta too has institutional backing in the form of Connaught asset management. With the mainstream residential mortgage market and buy-to-let markets still hampered by the lack of wholesale money (among other things), the short-term sector has enjoyed the spoils of the past four years. But competition is hotting up. a year ago the cheapest rates available were hovering around the 1% mark. With the arrival of precise mortgages, the residential and buy-to- let intermediary lender, into the mix, a straightforward bridge can be got for 0.75% per month.
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