Like most areas of the mortgage market, the bridging market has barely paused for breath since the beginning of the year. Brokers and lenders alike have spoken of increasing demand for short term lending for a range of purposes amongst homebuyers and property investors. And this demand has been confirmed by the latest ASTL lending data, which found that applications achieved £7.49bn in Q1 2021, an increase of more than 25.5% on the same period in 2020 and 12.0% higher than in Q4 2020. In fact, £7.49bn represents the second highest quarterly applications value on record, with the top quarter being recorded in Q3 2020, which included much of the pent-up activity coming out of the end of the first national lockdown.
A trend we have become used to seeing recently is that, while application numbers have increased significantly, the value of completions remains relatively steady. Completions in Q1 2021 totalled £900m, falling by 1.9% on Q4 2020 but up by 10.7% on the same period last year.
It means that, on average, it takes more than every £7 worth of bridging applications submitted to complete £1. It seems that this low conversion rate has been exacerbated by the pandemic, but it was an emerging trend way before Covid. Across the whole of 2020 there were £25.82bn of applications, but only £2.88bn of completions. In 2019, we recorded £23.19bn of application and £3.99bn of completions. And, in 2018, there were £21.46bn of applications and £4.05bn of completions.
Speaking to a number of parties within the industry, both lenders and intermediaries, it seems that there are two main reasons for the low application to completion conversion on bridging loans. The first is brokers sending one application to multiple lenders to find at least one that sticks, the second is the increasing average length of time from application to completion, and these two things are intrinsically linked.
Bridging finance is a short-term loan and so the longer it takes to complete, the more likely it is that the original requirement for the loan will no longer be necessary, and so if we are seeing an increase in average completion times this will naturally lead to more loans falling through.
This increase in completion times is rarely caused by lenders dragging their feet – it more often sits with delays in accessing the correct information, valuations, conveyancing etc. However, lender turnaround times are not helped if lenders are inundated by lots of speculative applications from brokers who are using the application process to shop around.
Thorough research is an important part of any advice process, but it’s more efficient for everyone involved if this takes place in advance of application. The current situation, with so many applications falling by the wayside, does not help anyone – lenders, brokers and importantly customers.
Brokers have a duty to their customers to explore all of the available options, but at the same time, lenders do not want an unnecessary number of applications that don’t ultimately move to completion. By reviewing current working practices, we could perhaps start to provide greater certainty of terms earlier on in the process. This would create a more efficient model, reduce processing times and cut costs. It’s something we should investigate as a way of evolving and enhancing our customer proposition.
Another consideration, and one that we believe should be given a high priority by all lenders, is the disclosure of intermediary commissions to customers
The legal outcome of a recent case makes it clear that if a lender has paid a commission to a broker which has not been disclosed to the borrower, that lender is now more at risk of the entire loan being set aside. Where a loan is set aside this can mean that a lender will have to make a substantial payment to the borrower and, in some cases, they might also be required to pay damages.
This is a particular issue for unregulated lenders that are not required (by regulation) to disclose commission and for whom there may sensibly be requirement to update processes and documents.
At the ASTL, we believe this to be a matter of the utmost importance. We are working with our members to raise awareness of the issue and we are investigating the introduction of a standard minimum level of ‘lender to consumer’ fee disclosure for all of our members at the earliest stage in the process to ensure protection from retrospective claims in the future.