The changing landscape of bridging finance: chapter 1
Over the last 25 years the bridging market has transformed dramatically. Bridging loans are now an essential tool for property developers searching for an efficient way of financing their projects. As the bridging sector continues to develop, it is vital for brokers to future-proof their business by considering how technological advances will impact how brokers navigate the market.
The growth of bridging finance
During the 1990s the bridging market grew rapidly as bridging gained its status as a valuable funding solution. The introduction of the ‘self-cert’ mortgage further boosted the popularity of bridging loans. The bridging sector continued to grow, but many within the industry remained sceptical of bridging loans, viewing them as a high risk and expensive option. Then, in 2007 unforeseen circumstances permanently altered the face of bridging finance.
The financial crash
The financial crisis of 2007 was a significant turning point in the bridging sector. High Street banks were deterred from awarding bridging loans due to the risk involved with funding new projects. This left a gap in the market, which was gradually filled by smaller lenders seeking to grow their market share. As more bridging loan lenders entered the market, competition grew and prices came down. As a result of more attractive prices, borrowers who had previously criticised bridging loans began to appreciate the benefits of bridging finance.
In the last decade, bridging finance has become a common way for developers to secure capital quickly and efficiently. Bridging finance has consequently played a more prominent role in the real estate market. It is now estimated that bridging loans account for around £4 billion of the British market.
COVID-19 and the bridging market
Many industries have struggled to overcome the challenges presented by the pandemic. However, the property market in the UK has continued to show positive signs of growth. For example, in Q4 of 2020 approximately 350,000 residential exchanges were finalised - the most in any quarter over the last six years.
Banks reacted with caution, withdrawing a number of mortgage products, such as the base majority of standard 10% mortgages. This encouraged more property investors and homeowners to turn to bridging loans for a quick cash injection. Furthermore, people were keen to take advantage of the loosening of the Stamp Duty Land Tax. This made time pressure a key factor for developers seeking to capitalise on cost-savings. As bridging loans provide borrowers with the opportunity to invest quickly, the demand for bridging finance grew. Property developers looking to avoid lengthy mortgage proposals and broken chains turned to alternative financing solutions to overcome otherwise complex circumstances.
The future of the bridging market
Given the impact of COVID-19 on the real estate industry and overcrowding in the market, brokers need to be able to easily access lenders that suit their deal. Intelligent technology, such as the smart tools available at Native Finance, will help borrowers to navigate the bridging market as it continues to expand. The tools at Native Finance allow borrowers to source lenders that match their deal and to monitor their deal as it progresses. Utilising these innovations will help property investors to meet the challenges of a rapidly growing market by ensuring that their business remains efficient and dynamic.