Some bridging lenders are reliant on external funding, while others like Hope Capital, are principal lenders, which means they are privately funded, and therefore not directly affected by BoE rate rises.
In fact, as bridging becomes more accepted as a viable alternative to high street lenders, there is more competition in the market which has actually forced rates down. However, rates do vary quite widely between lenders because cases are taken on an individual basis, so rates are agreed depending on a number of factors including the speed at which the borrower needs to loan in place, how flexible the lender needs to be and the risk involved.
The main effect of rate rises on the bridging market, therefore, is exit routes. Borrowers who are looking to refinance as their exit route will, be affected by higher rates on the longer-term finance deals that they go onto after the bridging loan. Therefore, bridging lenders and brokers need to be aware that if rates rise, it may affect the borrowers’ exit strategy and therefore their ability to repay the loan, which may need to be taken into account when assessing the risk.
Even if selling the property is the customer’s exit strategy, this still may be affected by rising rates because higher rates tend to slow property price growth.
However, assuming rates don’t rise significantly, I think the impact of the recent rises on the bridging industry to be fairly minimal. At Hope Capital, thanks to our position as a principal lender, we will continue to look at every case on an individual basis, whether there is a rate rise or not.