Bridging finance
Positive year ahead Retaining a position of strength
Steven Nicholas, Chief Executive, Tiuta plc, provides an update on the bridging finance sector and explains why the current growth in bridging is sustainable
No-one likes to hope for a negative scenario, but in every threat there is an opportunity. For example, a pessimist might view icy weather as an
inconvenience or a hindrance; an optimist would be outside selling sledges or salt. In much the same way, while none of us has welcomed the economically unstable environment, you can’t deny that the bridging loan market has thrived over the past couple of years. With high-street banks yet to fully regain their lending appetite and funding lines hard to come by, lenders such as Tiuta have been able to manoeuvre into a position of strength as viable alternatives - sometimes the only alternative.
Brokers have been wise to this bridging boom and are expecting short and medium-term lending to account for a larger proportion of their business this year. Recent research revealed that advisers expect to write 27% more bridging loans in 2012 than they did in 2011 and 63% of intermediaries said bridging transactions were up. This is no real surprise against the backdrop of a rapidly growing market. While residential lending remains anaemic, net lending is up 56% in the bridging sector and this impressive rate of growth shows no sign of slowing. Further increasing the attractiveness of bridging is rate confidence. Loan-to-value rates are expected to stay stable while 67% of those surveyed predicted the average interest rate on a bridging loan would hold steady or fall over the next two quarters.
Large loans
In addition to the healthy state of the bridging sector in general, there seems to be particularly strong demand in the large loan space. We have witnessed this appetite first-hand as a £30 million tranche of funding Tiuta made available in December was soon exhausted, prompting us to extend and double it to
18 Business Moneyfacts ®
£60 million for use over the next few months. Since the decision was taken last year to offer a specific large loan proposition for amounts in excess of £1 million, we have seen a four-fold increase in enquiry levels, with most of the demand emanating from central London.
This increased demand for bridging finance at the higher end of the market shows that the sector has grown beyond its typecast role as a means of funding property purchases at auction. While this still represents a solid part of the market, we are now seeing bridging loans utilised for a variety of reasons such as property refurbishment and conversion, buy-to-let purchase and even to break a simple mortgage chain when speed is of the essence. Commercial organisations are just as likely to use short-term finance as individuals, hence the growing appetite for larger loans.
2012 looks like being a positive year for the bridging sector and we intend to remain a prominent part of that.
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New kids on the block As with any profitable sector, success has a habit of attracting a horde of potential new entrants. While this is welcome to an extent and helps raise the profile of bridging loans, we need to be careful that newcomers have the best interests of their
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clients at heart and aren’t just out to make a quick buck. While the professionalism of the industry has undoubtedly come on leaps and bounds in the past few years, the actions of a few can soon undo this hard work. We’ve all read the horror stories in the past about less than scrupulous ‘lenders’ offering misleading headline rates and keeping hold of procuration fees, so let’s hope these undesirables stay away from bridging. Much of what we do may fall outside the FSA’s current remit, but that doesn’t mean that we don’t have standards and ethics to adhere to. Indeed, the regulator has being paying particular attention to regulated advisers who have diversified into bridging, so we must all ensure we are adopting best practice at all times.
Future forward
As well as capitalising on the wave of interest that bridging is enjoying at present, we’re also keen to stay one step ahead of the competition and to that end recently launched an iPhone and iPad app. The downloadable software gives users another way to keep in contact with us on the move and contains a loan calculator to provide clients with an indication of the costs and fees associated with a bridging loan. It also has the ability to submit approvals in principle immediately and also includes a complete case-tracking system. In today’s fast-paced environment when time is often of the essence - and with bridging loans minutes often matter - the app gives advisers another tool in their armoury.
All things considered then, 2012 looks like being a positive year for the bridging sector and we intend to remain a prominent part of that. We can all learn from mistakes made in other areas in the lead up to the credit crunch to ensure that the current growth in bridging is sustainable and much more than just a flash in the pan.
March 2012
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