Positive Lending has fast become the partner of choice for bridging and short-term finance, and recognised by numerous accolades as a market leader in this sector. With increased business levels and appetite for bridging finance, we have taken the chance to chat with some of the industry’s leading names and figureheads to discuss current and future market opportunities, obstacles to overcome, and predictions on what lies ahead for bridging finance in 2024.
The Panel
David Coleman, Head of Sales at Positive Lending
Jamie Pritchard, Managing Director of Sales at Glenhawk
Alex Upton, Managing Director of Development & Bridging Finance at Hampshire Trust Bank
Gareth Lewis, Managing Director at MT Finance
Scott Marshall, Managing Director at Roma
DC – How has 2024 started for you as Q1 draws to a close??
JP – I feel a lot of brokers and investors were keen to see an end to 2023, a hard year based on the volatility of rates in the market. 2024 didn’t ‘burst from the gates’ as I felt there was still a lot of caution in the market. However, momentum has really started to build and as Glenhawk has opened up a full complement of product sets and added new equity and funding partners, as I am writing this Q1 and H1 appear to be extremely strong.
SM – Roma has seen a strong start to 2024 across the bridging and development ranges. We have witnessed especially large increases in business on our FLOW bridging range and heavy development. Roma has continued to innovate and remain agile for our brokers and customers. As a result of these values and our borrower first philosophy, our loan book is nearly 40% larger than this same period in 2023. Roma’s performance continues to be in line with expectations and we are looking forward to a good year.
AU – It has been an incredibly strong start to the year. HTB is a relatively new entrant into the bridging sector, having launched a dedicated division back in January 2023, we have seen business levels ahead of our ambitious targets, a strong indication of the level of positivity across the market. After the difficulties of the last few years, there is a sense of stability and optimism – those investors who might have put their plans on hold last year are more confident about pushing on with their purchases, and that is translating into higher-than-expected activity levels, which is welcome.
GL – 2024 has continued with the positivity we found starting flourish in the final quarter of 23. Consumer confidence had taken its fair share of knocks since Sept 22, but there has always been the desire to transact in the housing market. With inflation decreasing and a settled interest rate environment, borrower are willing to start transacting more, and invest in property. And this has shown with increased figures for both enquiries and lending this year.
DC – Market sentiment is that the process for bridging is now more drawn out, where as pre Covid it transacted quicker and was used as a “faster” financing solution. Why do you think this is? And what steps do lenders need to take to reduce the average application process?
JP – One of the key reasons for bridging is of course the speed of executing the deal, but there are many other reasons for using bridging including being the correct first solution: refurbishment, planning play, developer exit loans etc. Bridging has matured greatly over the last 5 years, with even more institutional funders joining the market, bringing with it the required understanding of the client and the asset on each deal. The packaging and understanding of a deal from the introducer, the client’s responsiveness, availability of the surveyors, legal partners chosen, the SLA of the lender, and technology being used to help with the process etc are all factors which combined make up the length of the specific deal. I have worked hard on the client / broker journey here at Glenhawk to make the process as efficient as possible and continue to listen to feedback from brokers on improving speed of process, technology (portals / Docusign etc), professional panels, communication all in the aim to improve conversions and speed of delivery.
AU – Speed has always been one of the most fundamental aspects of the appeal of bridging loans. A large selling point for this finance has been that it is possible for investors to get it in place within a matter of days, rather than the months it might take to arrange a buy-to-let loan, making it far easier for investors to move quickly, when needs be, such as purchasing at an auction.
There is going to be a noticeable difference in timescales between different lenders though. Something we have worked very hard at developing and is crucial for a new entrant to the bridging market is putting major focus on efficient processes. That means constantly improving and taking on board broker feedback to ensure that we can provide the sort of service and speed that they and their clients expect. This is key – it is so important to work closely with brokers to pinpoint where there are issues with the application process, and where changes can be made to ensure that clients are able to obtain the funds they need much more quickly.
SM – The industry remains confounded by the continuing backlogs at law firms and valuers in the marketplace. General residential and buy-to-let lending has remained slow, but this volatile market has created significant opportunities for investors who need specialist finance and therefore legal and conveyancing people with this expertise. It is up to lenders to improve communication, to understand the legal process and streamline it for the benefit of all stakeholders.
GL – Pre covid was a very different market than we find ourselves in currently, lower interest rates, fluid property market and far less uncertainty. Whereas today presents potentially more risks, a varied working environment and processing strains. However, bridging trends data shows that processing times are reducing year on year. There is also an argument to say that the need for speed is less relevant now than the certainty of liquidity to support a transaction.
DC – Bridging rates have remained low in relation to first and second charge products, creating a highly competitive market. Where do you think rates will go this year?
AU – I think there is a decent chance that rates can fall further, though a lot will depend on what happens with swap rates and the economy more generally. One thing we keep hearing from brokers though is that process is just as important as pricing. Lenders who work closely with intermediaries to get the fastest, most efficient process in place will win more business than those who might attempt to catch the eye with a particularly low rate but who are unable to
deliver the right journey for brokers or their clients. It ultimately comes down to giving certainty and delivering on that.
GL – As the wider interest rate remain stable and potentially see a softening there is a potential for bridging rates to follow suit, however, these changes should be looked a cautiously as bridging should always be priced for risk.
SM – As the base rate comes down, we will see bridging rates come down, but perhaps not in line with the base rate.
JP – The crystal ball question. Inflation is going in the desired direction and with Spring upon us there are signs energy prices will drop and also gas prices are moving down. As I write this MPC held the Base rate but none of the votes were to increase the base rate. I expect the base rate to come down by 1% this year, with further decreases into next year. Lenders like Glenhawk’s cost of funds are linked to the base rate so this will have a positive effect for the investor on rates during the year. Albeit, the macro and micro climate do have an effect on the volatility of the market rates so we watch upcoming elections, the various wars and many other factors including the cost of living with interest. The bridging landscape is competitive and we have seen rate decreases already in Q1 so this year is looking positive in that regard.
DC – We have received more inquiries for chain breaks, purchase pre-sales, and investment conversions such as BTL to HMO throughout 2023 and into this year. What patterns should brokers be aware of, and what other bridging finance opportunities lie ahead?
SM – A more challenging market creates more distressed sellers, which in turn leads to opportunity for shrewd buyers to take advantage of the chance to grow their property aspirations. We will continue to see busy auctions as well as an increase in multi-tenanted properties, as investors look for better yields.
JP – With BTL rates still remaining much higher than previous years this is effecting the affordability of BTL – with stress tests remaining high, and single family /AST lets squeezing the profit margins for these properties that are in a landlord’s portfolio. Yield creation is a real factor in using BTL – conversion of properties into multi-units or HMOs to increase the rental potential is a key use of refurbishment bridging. There are still not enough dwellings in the UK so I am seeing commercial being changed into mixed commercial through PD refurbishments and also conversions of disused commercial (pubs, offices etc) into multiple flats. Investors also using bridging to acquire property quickly in what they view as a below market value transactions.
Away from refurbishment, I am seeing share purchase transactions where a UBO is buying the LTD co off another landlord complete with the assets (multiple properties). We can facilitate these transactions but professional tax advice should be sought. Regulated remains a key product for us as brokers to understand the benefits of using bridging to chain break, or do a light refurb up to a PD scheme on their new home to make it suitable for their family’s needs.
AU – I think this just demonstrates the flexibility of bridging loan finance, that it can be utilised by borrowers in so many different situations. There are real opportunities for bridging in the regions. It is easy to get fixated with London and the Southeast, but we have seen substantial interest from the Midlands and North of England. We are bolstering our presence in those areas precisely because it is so important for lenders to have built-in local knowledge.
GL – Consumer demands of bridging are always there to support where the wider property market is feeling the strain. Naturally chain breaks will happen whilst property transactions are suppressed. We are also seeing more investors looking to maximise property value and affordability through changes and improvements to properties.
DC – Although the perception of short-term finance among brokers and consumers seems to be improving for the better, a significant portion of the market still considers the term “bridging” to be a “dirty” word. What more needs to be done to combat this negative perception?
GL – Education has remained the key to improve the perceptions of what a good tool and solution bridging can provide. The market has to continue to beat the drum and open up more to it benefits.
JP – I would love to rebrand it to ‘Transitional Finance’. The perception of bridging has improved but there is much to do with the education of how bridging can be used as the right solution first time. This comes from opportunity spotting, to knowing how to package a case and who best to use. The lenders with their sales teams are responsible for this along with excellent packagers like Positive Lending. However, I am finding more brokers open to discussing its merits and more new brokers using us each week which demonstrates that brokers are diversifying their businesses.
SM – Great lenders educate borrowers and brokers about what good looks like and what expectations should be. Roma has always been a firm believer in education of the industry. We played a leading role in the creation of the CPSP course with the ASTL, FIBA and the LIBF, with over 1500 people already signed up.
More knowledge in the industry will provide borrowers with more understanding, options and better outcomes. The idea that bridging is a dirty word is a dissolving one. Many long-standing lenders and industry bodies in the sector are a community that operates to treat customers fairly and provide highly favourable outcomes. Social media has also played a positive role in the reputation of the industry, with so many advocating their positive journeys and outcomes.
AU – The market today is much better than it was a decade or so ago, when bridging was seen as something of a ‘wild west’, and that improved reputation is in large partly due to the work of the Association of Short-Term Lenders (ASTL). Indeed, when we launched our bridging division one of the first things, we did was join the ASTL, because it sets the tone for what brokers can expect from us.
Ultimately it all comes down to education, showing brokers and their clients how bridging can work for them. All lenders have a responsibility here, to make sure that we are talking to intermediaries beyond those who use us regularly, and demonstrating the value we can provide to investors. I strongly believe that once they try a bridging lender, they will be convinced that this industry is anything but ‘dirty’.
DC – And finally, what is on the horizon for the bridging market for the remainder of 2024?
SM – This decade is known already for throwing a curve ball. I have been saying for a long time now that volatility creates opportunity. We are still in a situation where investors can buy better and build better. We have seen huge numbers of new applications, completions and most importantly, redemptions in the last 12 months and we are expecting more back-to-back record-breaking months.
The bridging industry is far from slowing down and we are here to support brokers who wish to move into the sector and help them with their property developer and investor customers. I think as the industry grows there is more appetite for institutions to lend into the space. In turn, there will be more lenders entering the market, providing increase competition which can hugely benefit borrowers.
AU – It looks like a positive year for the bridging sector. The data from ASTL shows the loan books hit a record high at the end of last year, and there is every reason to expect that new records will be set in the months ahead given the interest levels currently. After all of the challenges of the last few years, it is an exciting time for property generally, but particularly the bridging
market.
JP – More business will be written compared to 2023 and previous years – there is not much more innovation that can be done with products, just a wider appreciation of what the product can offer. You will find technology continued to be adopted to help the process and you will find more lenders joining the market. As I have said, we at Glenhawk are cautiously optimistic with what 2024 and into 2025 will bring.
GL – Growth, and the continuation of a problem solving solution to consumer needs.
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