It would be a fair assumption to say that most people in financial services will be hoping the remainder of 2019 holds more stability than the first weeks have suggested.

The ongoing uncertainty around the UK’s scheduled departure from the European Union has epitomised an environment in which we have had to learn to expect the unexpected, which isn’t an ideal situation for lenders or advisers.

As we approached the end of last year, in the short-term lending market, we were greeted with the news that Amicus Finance had entered administration which, combined with the environment of uncertainty, has led to questions in some quarters about the future health of the sector.

With this in mind, it’s useful to take a step back from the noise, to review the role the market has played in the past and to take an objective view of current challenges.

Evolution of a sector

When the 2008 credit crisis hit the UK property market, it was important for alternative finance to fill the gap left by the mainstream mortgage sector and short-term lending became a more significant for customers as it provided the flexibility that they needed to achieve their objectives.

The Association of Short Term Lenders (ASTL) was set up in March 2008, initially with 19 members, with the dual objectives of protecting the reputation of the sector and providing a voice for lenders involved in bridging and secured lending for terms of between six months and two years.

The role of the AST has been to promote responsible lending, transparency and professionalism in the bridging finance sector, with members subscribing to our code of conduct, membership rules and value charter. And we have achieved a lot over the past decade, growing our membership to more than 60 and developing an increasing influence with various bodies including the Financial Conduct Authority (FCA), the National Association of Commercial Finance Brokers (NACFB), Association of Bridging Finance Professionals (AOBP), and HM Treasury.

The lending landscape has also changed significantly over this decade. More institutions have spotted the opportunity and new lenders have entered the market, increasing the options available for borrowers.

Competition is important for any market. Not only does it provide customer choice, but a larger number of players can raise awareness of the product and stimulate demand. We have certainly seen new entrants into the bridging sector helping to spread the message about short-term lending as a flexible funding solution and there has been increased understanding about uses for bridging amongst intermediaries and consumers.

Those consumers have also benefited from another consequence of increased competition, with greater availability and lower pricing. But these benefits for consumers, also provide a challenge to lenders.

A report by EY into the bridging market last found that three key trends have emerged as a result of increased competition, with lenders experiencing margin compression, stretching to higher LTVs introducing more flexible product terms and features.

It’s important for any lender to manage these risk factors, but amidst an environment of high competition and some significant economic challenges, it is important for bridging lenders to be cognisant about balancing their appetite for market share and taking on excessive risk. Failure to appropriately manage this risk can lead to casualties, as we have seen.

Economic challenges

There are undoubted economic challenges ahead. The OECD’s stable forecast for the UK is based on the assumption that there is a smooth exit from the EU – and this is looking increasingly unlikely. The OECD says that failure to come to a withdrawal agreement with the EU is by far the greatest risk in the short term, suggesting that a no-deal scenario could subtract over 2% from real GDP over two years and elsewhere, media speculation makes the OECD outlook appear decidedly positive and the papers are full of gloomy predictions.

Brexit is not the only risk ahead. There are many indications that the global economy has passed its peak in the cycle and there have been signs of volatility in markets across the world. It is also widely expected that there will be a property price crash in Australia, with recent data from CoreLogic confirming that house prices have fallen the most in a single quarter since 2008. History tells us that the world can be a small place when it comes to economic contagion and if banks suffer losses in Australia, they may become more risk averse in other regions.

In addition, we don’t know the impact the UK’s growing mountain of debt will have during a downturn. The country’s total debt is projected to reach £6.7 trillion by 2023, with households accounting for £2.6 trillion of that, a larger share than both the government and non-financial companies, according to analysis by PWC.

Cautious optimism

There are certainly challenges, but there remains opportunity amongst the danger, and perhaps reason for cautious optimism about the sector.

The unemployment rate is historically low and real average earnings have risen. These are strong economic foundations and, if the Brexit situation is resolved without inflicting significant damage on the economy, there is potential for a bounce-back. The OECD says that Brexit-related uncertainties have held back economic growth since the referendum in 2016 and so any positive outcome from negotiations could lead to stronger than anticipated results.

The key for short-term lenders is to proceed with care. Firms need to invest in people, to ensure that they mitigate the threat of skills shortage and can have confidence in the decisions they make. They also need to invest in technology to help deliver this peace of mind, so that skilled people have reliable data to work with, and information-gathering needs to be improved.

This is why it’s so important that, as industry, we are able to put aside commercial differences and come together to share expertise and best practice. Increased competition amongst bridging lenders can grow our market and increase opportunity for everyone, but it also comes with risks, particularly in such an uncertain environment. By working together, we can help to identify those risks and agree a shared approach to mitigate them.

Developing this approach of mutually beneficial co-operation will be a key focus for the ASTL in 2019. With a cautious approach and the ability to share and adapt, we believe the bridging sector will emerge from the uncertainty with greater resilience and more opportunity.

Benson Hersch, CEO of the ASTL

A version of this article appeared in the March edition of FT Adviser (web)

At a time of such political uncertainty, it can be easy to default to a position of pessimism, but the bridging market remains in confident mood, with good reason.

The Association of Short Term Lenders (ASTL) recently published its regular sentiment survey amongst members, which showed that more than 57% of respondents said they were confident about the long-term future for the UK economy, compared to just 37% of those who were surveyed in March last year.

The research found that bridging lender confidence in their own business also remains strong, with three quarters of those surveyed say they expect their business volumes to grow in the next six months.

This is not just blind optimism by lenders and they are more cautious about the outlook for the overall bridging market, with nearly 29% of respondents expecting it to shrink, compared to just under 4% last March. There are also gloomy expectations for the property market, with more than 70% preparing for prices to decrease in the next six months.

Overall, however, positivity amongst members of the ASTL is up on this time last year and is higher than it has been since April 2016, which was before the EU referendum.

This might seem surprising, but it is supported by another piece of research published by the ASTL – the quarterly lending figures, which are compiled by the association’s auditors, using information from its lender members.

The results show that, during 2018, bridging lenders wrote more than £4bn of bridging loans, representing an increase of nearly 15% on 2017, the value of applications increased by more than 13% to nearly £21.5bn and total loan books increased by nearly 4%.

These are strong foundations of growth and they have been created during a tricky environment characterized by political uncertainty and weak property transactions. This bodes well for the sector as we look ahead to the prospect of continued uncertainty. If lenders are able to maintain a commitment to high standards of underwriting, robust processes and investment in people, there is no reason to believe that this confidence won’t lead to ongoing and sustainable growth in the future.

Benson Hersch, CEO of the ASTL

A version of this article appeared in the February edition of Specialist Lending Solutions (web)

Members of the Association of Short Term Lenders (ASTL) wrote more than £4bn of bridging loans in 2018, representing an increase of 14.8% on 2017.

Figures compiled by the ASTL’s auditors from its bridging lender members for the fourth quarter of last year show an increase in the value of loans completed, outstanding loan books and applications in 2018 compared to 2017.

During this period, the value of applications increased by 13.4% to nearly £21.5bn and total loan books increased by 3.6%.

The value of loans completed for the quarter ending 31 December 2018 increased by 13.5% on the previous quarter and the value of applications increased by 0.3%, although the value of outstanding loan books decreased by 7.1% during this period.

Benson Hersch, CEO of the ASTL says: “Our latest data survey shows continued growth in the bridging sector, with the value of loans completed in 2018 up by nearly 15% on 2017, the value of applications growing by more than 13% and the value of outstanding loan books also higher than the previous year.

“These results show that, in an uncertain economic environment, our members are continuing to provide useful, flexible finance for a whole range of purposes, and they are doing so whilst maintaining a commitment to high standards of underwriting. This is very encouraging and indicates a sustainable sector that is built on robust foundations.

The ASTL Data Survey: Q4 2018

These figures are taken from the responses from ASTL members, which include most of the key lenders in the bridging market.

 


The latest sentiment survey from the Association of Short Term Lenders (ASTL) shows that bridging lenders have become more confident about the long-term economic prospects for the UK.

More than 57% of respondents said they were confident about the long-term future for the UK economy, compared to just 37% of those who were surveyed in March last year.

Bridging lender confidence in their own business also remains strong but has fallen slightly since March 2018. Three quarters of those surveyed say they expect their business volumes to grow in the next six months, representing a small drop of 3% on last year.

There is, however, more caution about the outlook for the overall bridging market, with nearly 29% of respondents expecting it to shrink, compared to just under 4% last March. And lender expectations for property prices are gloomier still, with more than 70% preparing for prices to decrease in the next six months.

Overall, positivity amongst members of the ASTL is up on this time last year and is higher than it has been since April 2016, which was before the EU referendum.

Benson Hersch, CEO at the ASTL, says: “Set against an environment of so much uncertainty, the level of confidence shared by members of the ASTL is reassuring. This isn’t blind positivity as the survey reveals lenders are realistic in their expectations for house prices and the growth of the bridging market, but three quarters still expect their business volumes to grow in the next six months. This indicates that bridging lenders are well prepared for the environment ahead and are confident they have the right processes and personnel in place to ride out the storm and be well placed to benefit from future economic growth”

 

The ASTL Positivity Index

This year saw the ASTL celebrate its 10th anniversary. This has provided the ideal opportunity to look back and see what has been achieved over the past decade. ASTL membership has grown significantly – we had 19 founder members in 2008 and this has grown to 65 members and associate members in 2018.

The past 12 months have seen a fair amount of uncertainty in the property market, especially in the South East. This has made life difficult for some member firms, but the majority relished the challenge. We’ve seen several new entrants join the sector, with varying levels of experience in short-term property lending, so it will be interesting to see how these challengers fare in the next 12 months.

The volume and value of the short-term lending market continued to rise in 2018. Completions by ASTL members were close to £4bn for the year ended 30 September 2018, a rise of 21.2 per cent on the figures for the year ended 30 September 2017. During the same period, loan books have increased by 16.6 per cent and applications by 8.9 per cent.

The ASTL has been working with various organisations during 2018. These include the Financial Intermediary and Broker Association (FIBA), with whom we aim to foster greater broker-lender understanding. We’ve also participated in discussions with the National Association of Commercial Finance Brokers and Financial Conduct Authority, as well as responding to various FCA proposals. We’ve also held a series of seminars on fraud and other issues such as development funding.

At the ASTL, we’re excited about what 2019 holds. We plan to provide practical education for staff with less experience, as well as holding a series of seminars, designed to promote understanding of various issues. Associate members will be hosting and presenting at these meetings and it’s an ideal opportunity for experience to be shared within member firms. We will also be pursuing initiatives with other trade organisations and regulatory bodies.

A highlight of 2019 will be our conference which will be held on 30 October. The conference brings together leading figures across bridging, finance and politics to debate the latest industry trends and put forward ideas and predictions.

The economic climate is expected to be more difficult in 2019, with exit and refinance becoming tougher as traditional lenders are even more cautious. It’s difficult to see how all short-term lenders will flourish – mergers and acquisitions are likely. It will be interesting to see if peer-to-peer lenders struggle in 2019. If so, regulatory bodies are expected to react.

On the whole, short-term property lending will continue to grow as firms take the opportunities presented by the continuing lack of so-called mainstream finance. There will be pressure on rates and loan-to-values, but experienced and well-run firms should resist the temptation to increase risk levels. Despite the pitfalls for the unwary, the outlook for the short-term lending sector remains reasonable.

 

Benson Hersch, CEO of the ASTL

A version of this article appeared in the January edition of Specialist Lending Solutions (web)

  1. ASTL appoints new PR agency
  2. London Credit joins The Association of Short Term Lenders
  3. Tuscan Capital joins The Association of Short Term Lenders
  4. Debt - the elephant in the room