Reflecting on 15 years of change in the bridging loan industry

The rise of the bridging loan sector is one of the more significant and consistent trends in the UK property market in recent years. Under most people’s consideration, the sector is in its infancy, with this form of specialist financing having existed on the market since the 1960s, but only really taking off over the past two decades.

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Paresh Raja - Market Financial Solutions
1st November 2021
Paresh Raja 222

Having recently celebrated its 15th birthday, for instance, Market Financial Solutions (MFS) is one of the more historic lenders within the sector. In these 15 years, the changing face of the sector has been interesting to observe, with the industry-changing significantly.

In 2006, when MFS first started providing bridging finance, before the global financial crisis irrevocably changed the property market and the way individuals access finance, the sector contained only a handful of lenders offering similar products. The sector was, in the scheme of things, considered a niche area of finance.

Additionally, in the early part of the decade, there was caution around short-term lending, and the sector suffered under the weight of the stigma of ‘loan shark’ tendencies. One of the more visible changes in the sector today, when compared with 2006, is that the sector has gone from strength to strength, and shaken the tag of predatory lending. Indeed, borrowers and lenders now depend on bridging lenders and products to meet a variety of needs, with the sector now legitimised as a useful source of property investment financing.

Why bridging finance has seen such growth

As previously alluded to, the global financial crisis represented a critical moment for the rise to the fore of bridging finance. Following the mainstream financial free-for-all of the early noughties, banks became more stringent and conservative with their products as the credit crunch – particularly in the mortgage space. This risk aversion operated in the market as a reticence to lend to more complicated applicants, with products pulled from the market and stricter criteria set for borrowers to satisfy.

Lenders’ increasing strictness did not simply take the form of higher tests and checks for financial qualification – it also came in hand with deference for the sanctity of these new rules. Simply put, those with more unusual financial structures found it challenging to be approved finance from the traditional lenders, and had limited opportunities to explain the configuration of their wealth, and therefore worthiness of a loan facility.

This opened up gaps in the market, which agile bridging lenders were well-placed to capitalise upon. By specialising in considering applicants and their financial structures on an individual basis, bridging financiers have been able to carve out an impressive market share by providing fast and targeted access to the property market where opportunities arise.

Accordingly, the fundamentals of these types of products have elicited a sustained period of growth. Convenient and flexible finance, delivered with efficiency to a wide range of client needs, has seen bridging lenders become a genuine rival to traditional lenders in a variety of cases. In 2010, the value

of bridging loans in the UK was £400 million, and less than a decade later, in 2019 the value deployed had reached £4 billion.

Speed and flexibility also underpin bridging lenders’ competitive edge. That bridging loans can be approved and delivered in just days, rather than the weeks or months traditional lenders can take, mean that the sector is highly attractive to investors needing to act fast, or with complex financial circumstances.

During the stamp duty holiday, for instance, this speed became a critical feature. The fervour within the market imposed deadlines for the scheme, and rapidly spiking house prices, meant that time was of the essence. Bridging facilities had two critical roles here: firming up property chains to prevent deals falling through as other sales faltered, and allowing investors to close deals quickly to avoid being outbid or missing the rate relief deadline.

Diversity and creativity – showing promise for the future

The foundations of the sector’s offering are largely unchanged, then. Instead, the most promising feature of the bridging sector, and the optimism around its ongoing growth, lies in its creativity in responding to new market trends.

At MFS alone, there is a striking difference between our product range today, and the initial offering of 2006. Across the sector, there is a diversification that has taken in residential, commercial, auction financing, buy-to-let (BTL) investment, development exit, off-plan, and any other investment avenue you could imagine. The key to providing a true ‘alternative’ to traditional lenders is adaptability, and the bridging sector has demonstrated this repeatedly.

Increased competition has, to that end, been a welcome development over the past 15 years. While the rates wars risk impeding the necessary focus on quality of service, in general, the entries to the bridging market of many new lenders over the years has encouraged innovation. New products to meet different needs, and new specialisms along the way.

Just like investors, bridging loan providers have had to adapt in line with the times. From the changes to the BTL market in recent years to the challenges posed by Covid-19, there has never been room for complacency, with lenders constantly needing to evolve and improve.

It is evident when contrasting the bridging sector today against its pre-credit crunch standing, that the success story is predicated on not only attention to individual detail and flexible assessment of clients, but the innovation within the market. Where traditional lenders operate on a scale that requires risk-aversion in the face of economic upheaval, bridging lenders are freer to examine the real estate sector for opportunities, and so provide a crucial instrument in propping up the property market, and affording greater access to emerging opportunities.

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