Marc Callaghan, Head of Specialist Finance, OSB Group
The bridging sector has not just grown but evolved significantly over the last decade or so. Lenders’ products have become more flexible and multi-faceted, processes are slicker and interest rates have dropped by around 50% since 2010, thanks to a steep rise in competition, with a wide range of specialist lenders now active in this market.
In terms of interest rate movements, the bridging sector is not immune to the influences affecting the mainstream market of course, and the whole economy is suffering from uncertainty. But borrowing costs generally feel to be in the vicinity of a peak. And bridging is perhaps unique in the mortgage market in that the headline interest rate of products is a much lower priority for borrowers than other considerations, the main driver being speed. In the latest UK Bridging Market Study carried out annually by EY, the key considerations when choosing bridging finance were identified as: speed of execution (61%); relationship management (36%); reputation of the lender (31%), funding flexibility (25%); transparency of pricing and terms (22%); low pricing (16%); level of information required by the lender (12%).
Of course, costs are important, but from a lender perspective we really need to ensure we’re delivering in terms of turnaround time, clarity of communication and nurturing our broker relationships when it comes to bridging, which we believe will remain a growth area, despite the ongoing challenges in the wider market.
Firstly, we anticipate growing demand for bridging finance from buy-to-let landlords. We carried out extensive research of 2,000 landlords last year which revealed a growing group of increasingly professional portfolio landlords we dubbed ‘Landlord Leaders’. They tend to own multiple properties and are highly focused on energy efficiency. Some 40% said they had already made environmentally-friendly upgrades to their property and 35% planned to do so in future.
With the EPC ratings requirement change coming into force this April, and further changes under discussion, the proportion of landlords professionalising and investing in property improvements is only likely to escalate.
Bridging can offer an ideal solution for financing property upgrades, particularly when funding is needed at short notice. The application-to-completion process can be swift, so improvements can be carried out quickly, minimising the impact on tenants. Bridging is also flexible – with offerings like ours, landlords have the choice of paying off the funding in the short term or extending over a longer period if necessary.
In the same way, bridging can be an option for financing conversions of residential homes to HMOs, a popular choice for student accommodation. Given UCAS’ forecast that university applications will have grown by almost 50% between 2022 and 2027, landlords undertaking such conversions are likely to be another strengthening source of bridging demand.
Bridging will continue to play an essential role for those buying at auction, circumnavigating chains, downsizing and more. In a challenging market we expect bridging to be a growing niche this year, and a solution which really should be part of every broker’s toolkit.