Bridging applications hit record value in Q1 2019

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. Applications for the year ended March 2019 were £21.8bn.

Figures compiled by auditors from data provided members of the Association of Short-Term Lenders (ASTL), revealed 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.

The value of completions during Q1 2019 was £898.5m, representing a 13.1% decrease on the same period last year.

Included in the figure for bridging completions was £92 m of development loans. In addition to this, ASTL members wrote a further £206.6m of non-bridging development loans, making a total of £236.9m.

Benson Hersch, CEO of the ASTL says: “The results for Q1 2019 were a mixed bag. For completions, this was the lowest result since Q3 2017. On the other hand, the loan book total is the highest since Q1 2018 and the applications were the highest ever. We would expect this high value of completions to result in improved completions in Q2 2019.”

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

Bridging confidence built on strong foundations

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)

Bridging outlook for 2019: Proceed with caution

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)

Bridging lenders grow in confidence about economy

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