Short-term lending in its various guises may have been around for some time now, but what we know now as the current bridging loan market is still a relatively new concept compared to the mainstream mortgage market. If the bridging market were human, it would be in its later teenage years or possibly early adulthood; leaving behind the rapid growth spurts of puberty for a more settled, mature phase of growth. The latest year-on-year gross lending increase shows that annual improvement is still trending at an impressive 26%, but this has calmed from the 73% witnessed in 2012.
The bridging industry has enjoyed ticking off various landmarks on its journey. According to the West One Bridging Index, in 2013 the industry celebrated passing the £2bn annual milestone (an 18th birthday of sorts perhaps) and, all being well, the £3bn barrier should be exceeded at some point in 2015. This may still be somewhat modest compared to the elder statesman that the mainstream mortgage market represents, but it is an impressive achievement given we hadn’t even surpassed the £1bn mark in early 2012.
As with any maturation, there have been growing pains along the way, but the bridging sector has taken any slings and arrows in its stride and emerged all the better for it. In many ways the sector was forced to be old beyond its years by riding to the rescue when many high street banking institutions lost their appetite to lend during the global financial downturn. Many developers unable to access finance from mainstream lenders were left with no choice but to turn to specialist lenders and it could be argued that the economic trough would have been even deeper were it not for bridging lenders showing a flexible attitude to get deals over the line.
Another way in which the bridging sector has always had a wise head on its shoulders and has learned from the mistakes of others is in its attitude to risk. One only has to cast one’s mind back to 2006/7 to remember how liberal lending criteria got in in the mortgage market as banks fell over each other to offer ever higher LTVs to borrowers only too happy to sign up to suicidal deals. By way of contrast, bridging LTVs remain under 50% as lenders and borrowers alike steer clear of overstretching themselves. The bridging sector’s future growth potential is also underpinned by a sound set of fundamentals. Average loan sizes and volumes have increased in tandem, meaning that any improvements down the line are less reliant solely on larger loans or just increased transactions and can instead call on both.
All this isn’t to the say that the bridging sector is getting boring in its old(er) age. It is still the fast-paced, dynamic industry I joined more than ten years ago and is still more agile and flexible than many of its more mature counterparts. Here’s to the next exciting chapter in the bridging story and many major milestones to come.
Duncan Kreeger is director of West One Loans