Bridging lending breaks new records in Q2 2019

Bridging loan books grew to a record £4.62bn at the end of the second quarter of this year, representing growth of 11.7% compared to Q1 2019 and an increase of 14.4% on the same quarter last year. 

Bridging loan applications also hit a record total in the 12 months preceding the end of Q2 2019, with £22.13bn of applications representing a 9.7% increase on the same period the previous year.

This is according to figures compiled by auditors from data provided by members of the Association of Short-Term Lenders (ASTL), which confirmed that more than £1bn of bridging loans were written in the second quarter of this year, an increase of 11.8% on the previous quarter and a rise of 4.1% on the same period last year.

There were £5.69bn of bridging loan applications in Q2 2019, which is 4% lower than the first quarter of the year but 5.3% more than the same period in 2018.

Benson Hersch, CEO of the ASTL says: “The second quarter of this year has delivered some very strong results for bridging lending, with record values both for applications over a 12-month period and total outstanding loan books. In fact, nearly all measures were higher than last quarter and the same period in 2018. The wider political and economic environment remains uncertain and the challenge for the industry now is to continue this level of activity whilst maintaining high standards of underwriting and customer focus.”

The ASTL Data Survey: Q2 2019

These figures are taken from the responses from ASTL members, which include most of the key lenders in the bridging market.

 

 

PRESS RELEASE WEDNESDAY, 14^th AUGUST 2019

Bridging lenders expect economic stability

The latest sentiment survey from the Association of Short Term Lenders (ASTL) shows that bridging lenders remain confident that the economy and property prices will remain robust despite continued political uncertainty.

The number of respondents who are not confident about the long-term prospects for the UK economy has fallen from 29% in January to 18% in the most recent sentiment survey, which was carried out in June.

At the same time, nearly 60% now expect ‘slight growth’ in UK property prices over the next six months, compared to just under 29% in January, although 68% say they don’t expect to see a ‘Brexit Bounce’ in house prices.

Despite improved positivity about the economy and property market, bridging lenders are less positive about the prospects for their own business, with just under 60% expecting the turnover of their business to increase in the next six months, compared to 75% when the survey was last held in January.

This sentiment could be caused by a combination of modest expectations for the growth of the sector and continued competition within the market. Less than 23% of respondents expect turnover growth in the sector over the next six months, compared to just under a third in January and more than 40% of respondents said their biggest current challenge was competition from other lenders.

Benson Hersch, CEO at the ASTL, says: “Confidence in the UK economy remains high, but while members continue to be fairly positive about their own prospects, this positivity is falling. Most expect the outlook for the sector to remain flat. Increased turnover is therefore only likely to come from taking business from other firms, so the marketplace will remain tough, especially as more than a quarter of respondents expect competition in the bridging sector to continue to grow. “Overall, positivity remains high, but it has been on a downward trajectory for more than a year now. It is hoped that the political situation will become clearer, leading to increased confidence and more business, but a “Brexit bounce” for property prices is not anticipated.

Press Release, Wednesday, 10th July, 2019

The ASTL Positivity Index

 

Certainty is key in the current market

ASTL members reported that bridging loan applications totalled more than £5.96bn in the first quarter of this year. representing growth of 13.6% compared to Q4 2018 and an increase of 6.9% on the same quarter last year. However, the value of completions during Q1 2019 was £898.5m, which represented a 13.1% decrease on the same period last year.

This is according to figures compiled by auditors from data provided by members of the Association of Short-Term Lenders (ASTL). The numbers reveal that bridging lender loan books reached £4.14bn in Q1 2019, an increase of 7.9% compared to Q4 2018, although slightly down on the same period last year.

So, what does this tell us about the current market?

First, it is worth noting that Q2 figures are often more positive than Q1 figures and so we should expect the value of completions to increase in the next set of results. But, for now, the difference between application and completion volumes indicates a significant proportion of cases that are not proceeding through to completion.

This is likely to be due to a combination of continued unrealistic valuation expectations from borrowers and brokers taking advantage of the competitive lending environment by submitting applications to multiple lenders in the expectation that one of those lenders will find a way of making the numbers stack up.

The faltering market is driving demand for bridging loans to fund the gap between property transactions and the lack of liquidity in the market means that borrowers are taking longer to secure an exit, so loans are staying on lenders’ books for longer. The standard length of a bridging loan is now creeping up to 11 or even 12 months, when recently it was just nine months.

Consequently, lenders are assessing applications with more scrutiny and the lengthening of the life of a bridging loan is reflected by a longer application process. It is now the norm for a bridging loan to take between six and eight weeks to complete from application and it’s not unusual for an application to take months.

It’s important that brokers understand this situation at the outset so they can manage the expectations of their clients, but also so that they can mitigate for the risks presented by a longer application process.

The longer it takes for a case to progress from application through to completion, the more opportunity there is for circumstances to change from both the borrower and the lender sides.

We have seen a number of incidences recently of lenders pulling deals and so certainty of funding is an increasingly important consideration for brokers when it comes to choosing a lender. The market is awash with choice, but not every lender will have robust and consistent funding models, so brokers need to do their homework and be careful about which lenders they pick – certainty is a key consideration for both them and their clients.

Benson Hersch, CEO of the ASTL
A version of this article appeared in the August edition of Business Moneyfacts (web)

Spotlight on default rates

Default rates have been a particularly hot topic in the bridging industry recently, following the decision of the Financial Intermediary & Broker Association (FIBA) to start publishing lenders’ default rates.

FIBA announced that it would include lenders’ extension and default rates in its online lender directory; following industry concerns about the transparency of these charges..

At the Association of Short Term Lenders (ASTL), one of our key objectives has always been to achieve greater transparency in the industry, and this is precisely why we amended our code of conduct for members as long ago as January 2017.

We did so to ensure all ASTL members that apply an alternative higher interest rate in certain circumstances, such as the default of a loan or in the case of term expiry, must make this clear and transparent in all of their documentation. This includes indicative or quotation terms, as well as in the actual loan documentation itself..

This approach is a best practice that is followed by all ASTL members, but there are lenders that are not members of the Association and we also have a responsibility to encourage those lenders to also meet these minimum expected standards..

There is no place in the bridging market for excessive charges, but there is also no need for price regulation. Such intrusive regulation would put a strangle hold on innovation and be a backwards step. In a free market, customers have the choice whether or not to pay a particular price. But they can only make this decision based on the information they are provided, and this is what the transparency of fees and charges is so important. If we can develop a culture that encourages the clear labelling of all fees and charges from the outset, we will create an environment of self-regulation, where those lenders whose charges are excessive compared to the market, will simply not win business and so pricing will find an appropriate level..

Transparency is key, and when the spotlight falls onto default rates, lenders and intermediaries should be in a position where they have nothing to hide..

Benson Hersch, CEO of the ASTL
A version of this article appeared in the July edition of Specialist Lending Solutions (web)