NACFB: Bridging is the umbrella for all seasons
Back in 2012 we saw a spike in the number of bridging lenders approaching the NACFB. Now the same thing is happening again. This column seems like a good opportunity to analyse why.
First of all, is this only something affecting our Association or representative of a population explosion among bridging finance lenders?
Reporting only on those who knock at our door makes for a highly unscientific survey of self-selected respondents, like when Jonathan Dimbleby bends over backwards to point out that his little Any Questions? audience votes count for absolutely nothing, at the same time as urging them to raise their hands to show their views on the importance of badminton being included on the under-8s school curriculum. All, of course, at the expense of the honest and downtrodden licence-fee payer.
Back on topic, I suspect that the number of bridging lenders approaching the NACFB really is a rough indication of the number of lenders in the marketplace, because our reach as an association doesn’t target lender types. We’re probably perceived as being an association of 50% commercial mortgage brokers and 40% asset finance brokers, because that’s exactly what we are. So we might look like a slightly more attractive partner to bridgers than we do to, say, peer-to-peer funders.
But more than that, there must be something about bridging that’s particularly appealing right now.
A simple matter of supply and demand is probably at least part of the answer. When it’s raining, leave the ice cream van in the garage and start selling umbrellas. And, if you’re confident the market can sustain it, sell umbrellas that are not one size fits all. Bridging, in this analogy, is the boutique, unique, antique umbrella seller, and very welcome when it’s raining.
Is it raining right now? Depends on who you ask. Alternative funders will generally tell you it isn’t – the things they say and write tend to be upbeat and confident, but that is because they are marketing not forensically analysing.
My guess as to why the number of such lenders has increased is that businesses were hoping, maybe actively expecting, the economy to have returned now to where it ought to be, and it is to some extent letting them down.
What has actually happened is slow growth and some unhelpful uncertainty over EU membership, China, and foreign exchange rates.
One canary in the mine is our findSMEfinance site, which dipped below £800,000 per day over the monthS of March and April this year – even lower than a similar-looking dip in 2015, which we attributed at the time to the general election. A subject for a separate article might be why such a falloff in interest might have occurred, and whether it’s reflected in May’s figures, but since these figures respond to marketing and promotional coverage, they’re not necessarily a straight guide to market behaviour.
On the other hand, there are plenty of people painting a much rosier picture. The UK economy’s recovery was initially slow-moving, with growth of about 2% for several years. But recent figures quoted by the IMF suggest that the UK economy’s recovery is the second most advanced among developed countries, behind only the USA, a country facing a similarly turbulent 12 months.
The CBI predicted growth of 2.6% in 2016. It’s a figure that can look either welcome or disappointing depending on where you’re standing to look at it. For instance, it’s below the 2006 figure of 2.7%, which started from a higher base point, but with what hindsight tells us was a wobbly set of foundations.
When we talk about 2.6% being either promising or disappointing, we’re providing more evidence for economics being a matter of perception at least as much as one of fact, and in any case there comes a point where the two become indistinguishable. What I mean by that buoyant talk promotes buoyant activity. If businesses have unrealistic expectations for the commercial mortgage market, then they may turn to bridging as a quick fix. The real-time feedback is that it’s hard to get a commercial mortgage.
This situation puts pressure on commercial mortgage lenders to broaden their risk appetite and the types of products offered, but the new lenders are squeezing themselves in the gaps between the two types, and we are categorising those lenders as bridgers because they exist in that space and they are promising quick, flexible, short term solutions. So long as small businesses are happy with the cost-to-benefit ratio.
I’ve heard it said that the considerable housebuilding targets the government is obliged to meet (but probably won’t) ought to help boost future growth in bridging lending, so there should be enough business to go around. As house prices climb, the industry may see a shift towards greater uptake for residential development as some borrowers seek short-term finance solutions to fix up uninhabited properties. But I don’t think that’s the answer.
More likely, it’s current demand, and a gap where the higher risk/return ratios fit in, that drives the interest we’re currently seeing.