Bridging in a changing market
The bridging industry is maturing and is a growing industry for those looking to access fast finance. Steve Barber, managing director of Bridging Finance Solutions discusses the key factors affecting the bridging sector for the following 12 months and considers the changes ahead
A low interest rate environment has had the most significant impact on the bridging market in terms of increased liquidity, as investors with capital to invest are actively seeking alternative opportunities other than bonds and equities for example.
This has led to multiple new bridging companies entering the market seeking returns. By definition, the investments are short term and as the recovery continues this liquidity may not always be available as other investment alternatives come into play and funding may leave the sector resulting in consolidation.
The bridging industry is undoubtedly maturing in a way that the mortgage industry did in the 80’s and is no longer a one size fits all sector. Individual firms are finding their own niche in a growing market be it by geography, loan size, security type etc.
On the basis that the mortgage market is c.£220bn and a broadly quoted estimate of £3bn as the bridging market, with only 1.3% the niche sector has further to grow. In particular, we are seeing a stark differentiation in all aspects between ‘ Bridging’ Firms and ‘Short Term Mortgage’ firms.
Changes to stamp duty and investment property tax relief will force further change.
Stamp Duty increases and investment property tax relief phased withdrawal from 2017 will undoubtedly cool the property investment market, but outside ISA’s what alternative long term investment strategies are available? Recent times have demonstrated the turbulence of equities and over a 15-20 year term, property will continue to provide for an attractive asset class. However, I expect to see a greater percentage of limited companies ‘refurbish and sell’ bridging loans as a result of the changes.
The government’s mission to make room for the first time buyer will take its toll on smaller investors who will no longer see the margins and returns once expected. “Smaller investors may well drop out of the investment market but with low interest rates, wage growth outstripping inflation and government incentives, this will make way for first-time buyers which in itself makes for a healthy property market.
As bridging moves from a niche product into the mainstream and increasingly recognised by professional advisors as a solution for clients, I expect to see considerably increased diversification of the uses of the product. The classic use of fast investment property purchase may well form a smaller percentage of a lenders overall book, as the sector levels off, but there will always be a requirement for fast, entrepreneurial funding underwritten on each individual cases’ merits.