It finally seems that we are emerging from the pandemic, and we’re doing so with the bridging market in good shape. The latest lending data from the ASTL shows an almost universally positive set of results for bridging lending in Q2 2021, with completions increasing, applications remaining strong and defaults falling.
The figures, which have been compiled by auditors from data provided by our members, show bridging completions were £1.1bn in Q2 2021, an increase of 23.2% on Q1. Bridging loan books reflect the 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. While average LTVs showed a small increase since the March 2021 quarter and now stand at 59.8%.
The value of loans in default continues to fall, showing a decrease of 7.6% on Q1 2021 and the number of repossessions also fell again this quarter, suggesting that lenders and borrowers are in good shape to tackle future challenge.
We’re very excited about the potential for the short term lending industry. Over the last year the market has demonstrated its resilience and ability to adapt. It has also demonstrated its maturity, with a continued commitment to robust underwriting and working together with customers, as has been evidence by the reduction of loans in default and repossessions.
However, there remain challenges ahead as the economic recovery must negotiate the withdrawal of financial support packages. And, as bridging starts to reach a wider audience of potential customers, it is more important than ever that we protect the growing reputation of our sector.
At the ASTL, we have a role to play in this and we will continue to promote high standards and the benefits of working with our lender members, which all commit to our rule and Code of Conduct. One area of concern we have recently noted is the way in which a minority of intermediaries have interpreted and used the the introduction of a new piece of legislation: The Debt Respite Scheme (Breathing Space).
Breathing space was introduced to give borrowers in problem debt the right to legal protections from creditor action for up to 60 days, including pausing most enforcement action and contact from creditors, as well as freezing most interest and charges on their debts. It works on the basis that borrowers should maintain interest payments on the principal in secured debt throughout, but that this will at least provide them with time to identify a solution without their financial position worsening.
On bridging loans, of course, there are rarely any ongoing interest payments to be made, but this hasn’t prevented breathing space being used, and potentially abused, in the bridging sector.
Breathing space can only be applied for on behalf of a borrower by an FCA-registered debt adviser and we have been made aware that there are firms with both debt advice and finance capabilities who may be are using the legislation as a means of blocking enforcement action and suppressing charges on bridging finance while they attempt to refinance the borrower.
This is against the spirit of the legislation and is ultimately detrimental to the customer as brokers, who do not forensically assess a case before applying on the debtor’s behalf are most likely to be unsuccessful in refinancing the loan. This is likely add to the emotional distress of the customer and leave the debtor in a far worse position.
At the ASTL we have recently written an open letter to intermediaries in the trade press. our request is this: please make use of legislation, like breathing space, in the spirit within which it was intended. Where a borrower is in genuine difficulty, I know that any of our members will be open to engage with the customer to reach a satisfactory outcome through the usual open and direct channels. Our lenders are committed to treating customers fairly and look to find sensible resolution; breathing space prohibits lender contact at a time when the best outcome is, more often than not, found through dialogue.
Misuse of breathing space is detrimental to the reputation of brokers, amongst customers and within the industry. But it’s also detrimental to the reputation of our sector as a whole. The reputation of short term mortgage lending has improved significantly in recent years, thanks in no small way to the good work of the ASTL and our members. Now we have a great opportunity to grow our market, we must all take some responsibility for protecting its reputation.
As we emerge from the pandemic, the bridging market is in good shape. Let’s make the most of this opportunity.