Alan Cleary - Group Managing Director
According to the latest figures from the Association of Short Term Lenders, bridging loan applications in the third quarter of 2019 grew by nearly 17% on the same period in 2018, reaching £6.1bn.
The trade association’s figures also suggest that at the end of the third quarter, bridging loan books totalled £4.3bn, a reduction of 6% compared with Q2, but an increase of more than 5% on the same period in 2018.
The figures, while unofficial, show how strong growth in this sector has been at a time when transaction activity in the mainstream residential and buy-to-let sectors has been put under pressure from the ongoing political uncertainty.
They come as separate figures from Link Group suggest that P2P lending has also seen strong growth this year. According to Link, marketplace lending — which includes crowdfunded and P2P loans — hit a record £3bn in the first half of 2019, rising by more than £500m, an increase of 21.6%.
According to Link’s analysis, the sector’s performance was powered by an exceptional period of growth for property lenders — they accounted for three fifths of the additional lending in the first half, some £848m – a significant uplift of 54.5%.
We’ve also experienced a very strong year for bridging. Much of the turnover has been driven by landlords reengineering buy-to-let portfolios, adding value through refurbishment or conversion to HMOs.
This uptick has been good for those in the short-term sector; clearly there is significant value created in this market that feeds through into the mainstream markets. But we should also be mindful of the fact that strong growth and larger loan books bring greater responsibility for those loans and borrowers.
As a bank, we take this responsibility very seriously, including where we operate in unregulated markets, such as unregulated bridging. But because this market is currently partly unregulated, there are still lenders that appear less inclined to do the appropriate level of due diligence and which lend on deals that others would rightly decline.
It’s not always in the interests of the borrower to approve a loan application where the numbers look too tight.
As an industry, we’ve come a long way in cleaning up shoddy practices, such as charging interest before it is due and adding exit and extension fees onto deals. Unfortunately, these things do still go on in the darker reaches of the market. Currently, bridging lenders have the opportunity to self-regulate, but it’s possible that the senior managers regime will give the regulator more power to intervene in unregulated markets.
There are plenty of lenders, such as ourselves, who see this as a good thing. We already conduct all of our business to the standards expected of us in regulated markets. But it may pose headaches for some lenders not used to operating this way, something brokers are likely to start considering more seriously.
So, while 2019 has been a year of superb growth for short-term lenders, we expect 2020 to be characterised by some consolidation and a shake-out of any lenders that continue to cut corners. For borrowers, that will mean better protection. For brokers, it will mean working with responsible, stable lenders that are in this market to stay. And for the lenders that remain, it will mean a bridging book that is both resilient and profitable.