Reflection on 15 years of change in the bridging lending industry

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One of the biggest and most consistent trends in the UK property market in recent years is the boom in the bridge loan industry. To most, the industry is still in its infancy, as this form of specialized financing has been in the market since the 1960s, but has only really taken off in the last two decades.

Having recently celebrated its 15th anniversary, for example, Market Financial Solutions (MFS) is one of the most historic lenders in the industry. During these 15 years, the evolution of the sector has been interesting to observe, with an industry in full transformation.

In 2006, when MFS began providing bridge finance, before the global financial crisis irrevocably changed the real estate market and the way individuals access finance, the industry contained only a handful of lenders offering similar products. The sector was, in the scheme of things, considered a niche of finance.

In addition, at the start of the decade, caution was in order with short-term lending, and the sector suffered under the weight of the stigma of “lending shark” trends. One of the most visible changes in the industry today, compared to 2006, is that the industry has continued to grow stronger and shake up the predatory lending label. Indeed, borrowers and lenders now depend on bridge lenders and products to meet a variety of needs, with the sector now being legitimized as a useful source of financing for real estate investments.

Why bridge finance has experienced such growth

As mentioned earlier, the global financial crisis represented a critical moment for the rise of bridging finance. Following the prevailing free finance in the early 2000s, banks became more stringent and conservative with their products due to the credit crunch, especially in the area of ​​mortgages. This risk aversion has functioned in the market as a reluctance to lend to more complicated applicants, with products withdrawn from the market and stricter criteria that borrowers must meet.

The increasing severity of lenders has not just come in the form of further testing and scrutiny of financial qualification – it has also come with a deference to the sanctity of these new rules. Simply put, those with more unusual financial structures found it difficult to obtain financing approved by traditional lenders and had little opportunity to explain their wealth configuration, and therefore the value of a loan facility.

This opened up gaps in the market, which nimble bridge lenders were well positioned to capitalize on. By specializing in the individual examination of applicants and their financial structures, bridge financiers have been able to carve out an impressive market share by providing rapid and targeted access to the real estate market where opportunities arise.

As a result, the fundamentals of these types of products have sparked a period of sustained growth. Convenient and flexible financing, efficiently delivered to a wide range of client needs, has seen bridge lenders become a real rival to traditional lenders in a variety of cases. In 2010, the value

bridging loan in the UK was £ 400m, and less than a decade later, in 2019, the value deployed had reached £ 4bn.

Speed ​​and flexibility also underpin the competitive advantage of bridging lenders. The fact that bridging loans can be approved and issued in just days, rather than the weeks or months that traditional lenders can take, means the industry is very attractive to investors who need to act quickly or under complex financial circumstances. .

During the stamp holidays, for example, this speed became a critical feature. The fervor in the market imposed delays on the program and the rapid surge in house prices meant that time was running out. Transition facilities played two essential roles here: consolidating real estate chains to prevent deals from failing while other sales faltered, and allowing investors to close deals quickly to avoid overbidding or missing the deadline. rate relief.

Diversity and creativity – promising for the future

The foundations of the sector’s offer are therefore largely unchanged. Instead, the most promising feature of the transition industry, and the optimism surrounding its continued growth, lies in its creativity in responding to new market trends.

At MFS alone, there is a stark difference between our product line today and the original offering of 2006. Across the industry, there is a diversification that has focused on residential, commercial, auction financing, purchase and lease (BTL). , development exit, off-plan, and any other investment avenue you could imagine. The key to providing a true “alternative” to traditional lenders is adaptability, and the transition industry has demonstrated this time and time again.

Increased competition for this has been a welcome development over the past 15 years. While the rate war threatens to hamper the necessary attention to quality of service, in general, the transition market entries of many new lenders over the years have encouraged innovation. New products to meet different needs and new specialties along the way.

Like investors, bridge lenders have had to adapt to the times. From the changes that have taken place in the BTL market in recent years to the challenges posed by Covid-19, there has never been room for complacency, with lenders having to constantly evolve and improve.

It is evident, when comparing today’s transition industry to its pre-credit crisis situation, that success depends not only on attention to individual details and flexible client assessment. , but also on innovation within the market. Where traditional lenders operate on a scale that requires risk aversion in the face of economic upheaval, bridge lenders are freer to scrutinize the real estate industry for opportunities and thus are a crucial instrument in supporting the real estate market and provide better access to emerging opportunities.


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