ASTL members reported that bridging loan applications totalled more than £5.96bn in the first quarter of this year. representing growth of 13.6% compared to Q4 2018 and an increase of 6.9% on the same quarter last year. However, the value of completions during Q1 2019 was £898.5m, which represented a 13.1% decrease on the same period last year.

This is according to figures compiled by auditors from data provided by members of the Association of Short-Term Lenders (ASTL). The numbers reveal that bridging lender loan books reached £4.14bn in Q1 2019, an increase of 7.9% compared to Q4 2018, although slightly down on the same period last year.

So, what does this tell us about the current market?

First, it is worth noting that Q2 figures are often more positive than Q1 figures and so we should expect the value of completions to increase in the next set of results. But, for now, the difference between application and completion volumes indicates a significant proportion of cases that are not proceeding through to completion.

This is likely to be due to a combination of continued unrealistic valuation expectations from borrowers and brokers taking advantage of the competitive lending environment by submitting applications to multiple lenders in the expectation that one of those lenders will find a way of making the numbers stack up.

The faltering market is driving demand for bridging loans to fund the gap between property transactions and the lack of liquidity in the market means that borrowers are taking longer to secure an exit, so loans are staying on lenders’ books for longer. The standard length of a bridging loan is now creeping up to 11 or even 12 months, when recently it was just nine months.

Consequently, lenders are assessing applications with more scrutiny and the lengthening of the life of a bridging loan is reflected by a longer application process. It is now the norm for a bridging loan to take between six and eight weeks to complete from application and it’s not unusual for an application to take months.

It’s important that brokers understand this situation at the outset so they can manage the expectations of their clients, but also so that they can mitigate for the risks presented by a longer application process.

The longer it takes for a case to progress from application through to completion, the more opportunity there is for circumstances to change from both the borrower and the lender sides.

We have seen a number of incidences recently of lenders pulling deals and so certainty of funding is an increasingly important consideration for brokers when it comes to choosing a lender. The market is awash with choice, but not every lender will have robust and consistent funding models, so brokers need to do their homework and be careful about which lenders they pick – certainty is a key consideration for both them and their clients.

Benson Hersch, CEO of the ASTL
A version of this article appeared in the August edition of Business Moneyfacts (web)