Bridging up as borrowers struggle to secure finance
More and more brokers are turning to bridging loans as their clients continue to fail to secure mortgage finance, research from MTF’s quarterly broker sentiment survey reveals.
Tomer Aboody, director of MTF, said: “Bridging finance is plugging a funding gap as borrowers find it more difficult to obtain loans from mainstream lenders implementing tougher affordability restrictions.”
Some 86% of brokers noticed a rise in bridging loan volume during the fourth quarter of 2015, up from 76% in the previous quarter.
Nine out of ten (91%) of the 181 brokers surveyed were unable to source mortgages for some of their clients in the fourth quarter, with almost half attributing affordability as the main barrier.
And 6 out of ten (61%) of brokers turned to bridging finance as an alternative source of funding in a bid to fill a liquidity shortfall, compared to 26% that opted for secured loans.
Borrowers have found it increasingly hard to obtain mortgages based on affordability criteria since the Financial Conduct Authority introduced tougher rules in 2014, under the Mortgage Market Review. The changes require borrowers to pass a series of “stress tests” but even after jumping through a number of hoops, mortgages are still not guaranteed.
The issue of affordability is due to intensify as the rules become more stringent and bring a wider number of borrowers under the net, including buy-to-let investors.
Aside from affordability, 27% of brokers said they were unable to get mortgages for clients with poor credit history and 18% blamed property downvalue.
The south-east saw the biggest demand for bridging loans in the UK during Q4 2015 at 50%, followed by London, which grew to 33% in the fourth quarter, up from 28% during the third quarter of 2015.
Bridging finance was seen a useful financial tool by 100% of brokers surveyed during the fourth quarter, up from 93% in the third quarter and 77% during the second quarter, showing its growing prominence as a loan product.
Aboody added: “At MTF one of our defining characteristics is that we are non-status lenders. We don’t require evidence of trading history, accounts or proof of income. Instead we focus on the property and the client’s future plans. This allows us to take a practical, common sense approach to lending.”