Bridging Watch: Strong foundations for sustainable growth

by Digital Media Manager

The latest lending data from the ASTL presents plenty of reasons to be positive about the bridging market. The figures, which are compiled by independent auditors using data provided by members of the Association of Short-Term Lenders, show bridging completions were £1.1bn in Q2 2021, an increase of 23.2% on Q1. Bridging loan books reflect this increase in completions and now stand at over £4.7bn.

Applications fell slightly, by 1.7% to £7.36bn, compared to Q1 but applications for the year ending 30 June 2021 were still 26.9% higher than applications in the year ending 30 June 2020, representing a strong pipeline of business.

Our lending figures for the first quarter of the year, which were released in May, showed a worrying trend downwards in terms of application to completion conversions. And at the time we reported that it took £7.49bn worth of applications to complete £918m of loans – the equivalent of more than £7 worth of bridging applications submitted to complete £1. Happily, the latest figures show a reversal in this trend, with just £6.63 worth of applications required to complete £1. We will, of course, continue to monitor conversion rates, and we expect the situation to continue to improve as confidence is restored to the market.

Confidence is an important factor in loan conversions. It’s not just about lenders having the confidence to say yes to an application, it’s also about broker confidence that they will get an affirmative response so that they are less inclined to submit multiple applications across different lenders for the same case. We know that the proliferation of multiple applications can slow processes at lenders and this can have a negative knock-on impact on conversions.

While it’s important in short term lending for lenders to make quick decisions, it’s also important, for everyone involved, that they make responsible lending decisions and a particularly pleasing aspect of the Q2 2021 data is that the value of loans in default continues to fall, showing a decrease of 7.6% on Q1 2021. The number of repossessions also fell again in Q2, reflecting the quality of lending and showing that the market is continuing to grow in a sustainable way.

There will be challenges ahead. The furlough scheme comes to an end in September and, while the scheme has been scaled back in recent months, there were still 1.9 million workers on furlough as of 30 June this year. As the scheme unwinds it seems sensible to assume that it will be accompanied by a spike in unemployment. This will naturally have impacts elsewhere in the economy.

There may be particular challenges in the construction industry. It has been widely reported that the pandemic has stimulated heightened demand for property renovations, extensions and refurbishments, which has been good news for those in construction. However, this demand has been accompanied by a lack of supply of some building materials meaning that it is taking longer and costing more to complete building projects. Changes to rules around VAT and IR35 have encouraged some construction contractors to leave the industry and put cashflow pressures on those who remain, and there are estimates that we could see around 10% of construction businesses and sub-contractors either failing or closing voluntarily by the end of 2022. This will only put added pressure on investors and home owners who have embarked on a refurbishment project or development.

It is therefore crucially important that lenders maintain a commitment to robust underwriting so that the market is able to continue to overcome challenges and achieve ongoing sustainable growth.

We are in a much stronger position today than I think we could have hoped for this time last year and part of this is down to open and transparent communication between lenders and brokers. It can sometimes be harder to maintain that communication in easier times, when business is flowing and it perhaps seems unnecessary – but now is not the time to rest on laurels. We may have weathered the worst of the pandemic, but there are continued challenges. It is important that brokers choose to work with reputable lenders with a commitment to customer focus and transparency, and that they take a proactive approach to communicating and working together with those lenders. From a lender perspective, it is important that we continue to deliver clarity and certainty. Out of a pandemic, we have created strong foundations for sustainable growth. Now is the time to build on them!