With the help of the ASTL, the bridging industry has become a much more regulated space, with lenders lending much more prudently than they did in the past. This more sensible approach to lending has resulted in fewer defaults and therefore lower rates.
And, as bridging has started to pull itself into the mainstream, borrowers are starting to approach bridging lenders for an increasingly wide variety of reasons, from a standard residential bridge, refurbishments to commercial purchases and auction.
So now, as more and more lenders have started to realise they want a piece of the bridging pie there are new players entering the market all the time. But the question is, is this good or bad for the market as a whole?
Well, that depends.
I have always believed that competition is healthy; it forces lenders to look at their rates and processes to ensure they are offering the best service they can. I, therefore, believe there is plenty of room for more bridging lenders, especially as the need for bridging finance continues to grow thanks to greater demand and awareness for specialist lending.
However, if it goes too far, it can have the opposite effect, and encourage bad practice.
For example, many of the new entrants to the market are realising that once a broker has found a good bridging lender, they won’t move unless they are given a good reason to.
So these new players can’t just come in and offer more of the same; in order to disrupt these long-standing relationships, they need to offer something different. And more often than not, that something different is market leading rates and higher LTVs. The trouble is, in order to be able to undercut their competition, they are starting to cut corners, including, not doing proper due diligence.
And we all know how that pans out; these lenders are approving bridging loans at high LTVs to borrowers who, due to the fact there has been no proper due diligence, end up defaulting.
This increase in bridging loan defaults pushes rates up as lenders look for ways to pay for these properties.
And as this happens more and more, not only does it tarnish the reputation of those particular lenders, many of whom come out of the market altogether, but it makes the whole industry look bad. So much has been done over the past few years to improve the bridging and short-term lending market, and we can’t afford to have new entrants coming in who don’t work to the same standards.
Imprudent lending, where you have lenders prepared to go too far outside of the standards we have worked hard to set, is bad for everybody.
I am more than happy for competition, but it has to be from bonafide lenders who are prepared to do the proper due diligence and calculate the risk properly. In my opinion, bridging offers short-term loans, but it is not a short-term industry. The most successful bridging lenders are in it for the long term. They are building up a business and a brand that can be trusted.
We have been in the bridging industry for seven years now, and have seen private lenders who came into bridging at the same time as us come and go, but we knew from the start we would be in it for the long haul.
Having said that, we are not sitting back, we are growing the business and constantly evolving and improving our products and services in response to brokers’ needs. We want to help take the bridging market where it needs to go. And if that means diversifying, offering new products different types of lending to different types of customers, then we will do that.
But we are not going to become a bank; we need to remain a specialist lender because the industry needs lenders that can be quick and flexible, and if you start diversifying too much you are in danger of moving too far away from the very solution you entered the market to offer.
Any new entrants coming into bridging need to consider every aspect of risk, process, customer service and pricing to ensure their proposition actually adds value. Brokers and intermediaries have a huge amount of choice these days, and to really win them over you have to offer more than a good rate or a high LTV.