The Changing Face of Bridging in the Face of Regulation

By John Wheeler, Sales Director at Omni Capital,

Having been involved in the short-term lending market for nearly 12 years, I have seen much discussion surrounding regulation with little avail. With the FSA showing increasing interest in the bridging market and buy to let mortgages, the question has to be asked as to whether regulation would indeed be condusive to improving conditions for short term lending?

Talk of regulation has surfaced several times over the past few years but most notably started back in 2003 when Sidney Cohen, with regulation on the horizon, prompted the discussion of the market having a voice with the FSA.

The response was surprisingly positive given the insular and somewhat murky state of parts of the market at the time. As a result, a founding meeting took place at the Manchester Expo some 8 years ago attended by a small number of lenders and chaired by the NACFB.

However, differences of companies and individuals meant the body never got off the ground, but the seed was sown and the ASTL was born a few years later, providing the first effective representation to both the authorities and public.

This was really quite a land mark event. When I first entered the short-term lending market, bridging was a misunderstood product viewed by many as a last chance saloon and as a result was definitely under used by the majority of the introducer market place. The formation of the ASTL was the start of the education process, opening up opportunities for short-term lending and providing a transparent platform for the products.

Once renowned for unscrupulous lenders that charged over-inflated rates and fees and who operated with a very limited and unreliable amount of funding, the ASTL helped bring about change toward a more institutionalised market.

Such changes and increased transparency became increasingly important in the early 2000’s when the property market boomed and buy-to-let and sub prime mortgages inflated at an inexplicable rate. However, despite the expanding presence of the ASTL there was somewhat of a lag between growth and transparency. With new property investors all looking to capitalise on the sector and its high rewards, all lenders, including those in the short term market were in high demand. Transparency and consistency were always issues facing the short term lending market due to the sporadic array of small lenders with limited and usually private sums of available funds; however with a surge in demand this was ever more the case.

Unfortunately, with the financial crash in 2007/8, short-term lenders, like all lenders, were hit hard, forcing some to dissolve and disappear. If ever there was a demonstration of the need for regulation this was it!

Three years later, and a continued lack of liquidity in the lending market has seen a revival and reinvention of the short term market. Prior to the crash ‘apparently healthy’ and liquid lending markets bridging firms were predominately focused on ‘vanilla’ style bridges as the market was well equipped to deal with all other forms of borrowing. Today, short-term lenders are introducing new products and adopting a more innovative approach to bridging, filling the huge void left by the traditional lenders. Indeed, short term lenders are moving toward introducing mid-term products, with one or two lenders who have benefited from substantial funding moving into development and longer term funding.

Whilst still a niche product within the overall mortgage market, the short term lending market has become even more specialist, branching into new avenues and providing some much needed support.

Hence with further diversification and continued innovation, regulation, whilst it may be attractive, would be both time consuming and complex and could indeed lead to a squeeze on the entrepreneurial approach to structuring loans that investors so desperately need.

Whatever happens, the sector will without doubt continue, reinventing itself again and again. With a number of new entrants rumoured to be on the horizon over the coming months, it can only be good news for the introducer and his end client offering greater choice and ever more competitive pricing.