Bridging optimism

An economic downturn, though challenging, could provide new opportunities for the bridging market, lenders suggest.

For many, rising inflation and interest rates are cause for considerable concern, but some bridging lenders believe there could be a silver lining to a recessionary period. It’s anticipated that they will pick up business from borrowers struggling to secure funding in the general mortgage market.

In spite of the recent economic turbulence, Phodis Maratheftis, Alternative Bridging Corporation’s recently appointed head of sales for London and the South East, remains pragmatic. “Now we’re in a time when the base rate’s increasing and we’re probably going to hit a period when property values are going to decline a little bit before they get any better,” said Maratheftis. “So your traditional mainstream lenders are likely going to be more conservative on things like obscure properties or more unusual transactions. That’s where bridging can take the next step forward to cover that market.

“I think the commercial lenders out there are also going to be a bit more conservative. More and more people now, I think, who are going to struggle to maybe get a long-term commercial mortgage might start looking at bridging [and] find out that it is actually a lot more useful than they probably think, especially for people who might want to buy or refinance their commercial assets.”

He said, “Someone who doesn’t know a lot about bridging, all they see is a slightly higher rate than regular mortgage

lenders; however, it is a totally different entity, [for when] you need a more tailormade solution rather than your standard mortgage. I think with more traditional long-term lenders, it is a lot of box-ticking, whereas bridging is more of a commercial mindset and decision-making. And if it makes sense, let’s do it. It’s definitely a more flexible industry.

“Bridging nowadays, it’s very wellknown and I would say probably more respected because it offers various solutions. It has always been popular with those who know it well and there’s always room to do more business.”

Maratheftis remains focused on delivering innovative, tailor-made property-lending solutions as he contemplates how best to navigate a downturn. “Looking at it from a lender’s perspective, it’s going to be about sensible loans-to-value on the right facilities,” he explained. “So not over-lending in areas where you probably shouldn’t. It’s about being conservative when you need to be and more ambitious when you need to be as well. We actually have a three-tofive-year term facility, which will be quite popular, I think, because of the mainstream market possibly being more conservative.”

Does Maratheftis think, though, that some property investors could be deterred, even in the short term, while they wait for the market to settle? “Possibly,” he agreed. “But there’s also the

flip side, where people will see this as a good time to buy as well. You’re always going to get the two sides to it. People may choose to hold off for a year or two on buying their next buy-to-let or their next project. On the other side, you have obviously got the people who want to take advantage of property prices possibly being slightly lower.”

He continues, “With us, even though we’re a short-term lender, we’re always looking farther than that – a year or two years ahead – because you have to be optimistic in the finance industry. I think that optimism comes with experience. So, for example, if you’ve seen similar things happening before – base rate increases, obviously COVID that we’ve all been through – you start to learn that, yes, there are hard times, but we will get out of it eventually. With 30 years of lending experience, we are able to provide brokers with the certainty and consistency they need in the current environment.”

For Maratheftis, in uncertain times, clarity remains key. “I would advise brokers to be honest and upfront with their clients,” he said. “Don’t just tell them what they want to hear because that’s not right for anyone.”

Challenging as the economy may now be, the bridging market has shown encouraging buoyancy this year. According to the Association of Short Term Lenders (ASTL), in Q2 2022, completions were just over £1.2bn, representing an increase of 17.4 per cent on the previous quarter. Remarkably, completions have been at more than £1bn for five consecutive quarters, and applications have also risen to £7.5bn – an increase of 18.7 per cent on the quarter ending in March 2022. The size of loan books rose, too, reaching a fresh high of just under £6.1bn.

“Certainly, the market is very, very strong,” said Jamie Jolly, director of bridging at Hampshire Trust Bank (HTB), which provides specialist mortgages, asset finance, development finance, and savings accounts. “I still think there are some really wonderful opportunities for customers in the marketplace. There is absolutely an opportunity for the bridging community to transact really strongly through this period. My reasoning for that would be the experience within our lending community.

“We’re a very experienced group. If you look at our team, for example, there is an abundance of experience, 50 years-plus; we’ve been through credit crunches, we’ve experienced difficult lending periods, but as term rates continue to creep up, it makes a bridging rate that has historically been that little bit more expensive a more attractive proposition because you’re able to access funds more quickly.

“I’m very mindful, and it’s important, that the people who operate in our team are people – whether it’s sales, or underwriting, or credit – who have all got experience within this space. The mortgage market is absolutely feeling the frustrations of time constraints. We’re able to tap into and use the team’s experience to put ourselves in a position where we can evaluate enquiries, we can review lending opportunity and then from there we can make really considered, well-assured decisions, and furnish the customer, or the broker, or both, with terms within a very short space of time. It’s important that we be able to move along with that transaction really, really quickly.”

He added, “I think the biggest challenges as bridging lenders, for us, is negating as much risk as possible and ensuring that we’re as competent as ever – that the customer borrowing the funds can still source an exit, a viable exit.

“There’s always a risk, the market changes, but investors will always be there. It’s just understanding where they are and what they’re looking to buy into, making sure at all times that your product best reflects the market in which you operate. I think if you were to look at the more experienced, what I would class as the sophisticated investor, again, similar to ourselves, they’ve been doing this particular type of business transaction for a number of years, perhaps even decades, so they’ll have been exposed to difficult trading conditions within the financial industry.”

Jolly draws a comparison to his younger years, when the terms of a

Phodis Maratheftis

Jamie Jolly

mortgage deal were not as favourable. “You know, we’re used to really, really low rates,” he reflected. “The cost of borrowing is still relatively inexpensive compared to when I bought my first property or, you know, the generation even above us, when we were borrowing money at 15,16,18 per cent. Borrowing money at four per cent, five per cent, six per cent, or eight per cent on a bridge is still a relatively inexpensive cost of acquisition.

“You might find that some of your investors, who are mindful of the situation, may pause a little bit, perhaps for three to six months, to see if anything eases off within the property market, to see if prices, property values, come down a little bit. If they could potentially sit on their hands, is there a better opportunity heading into Q1, Q2 2023? But the signs are that that’s not [going to be] the case because demand for property is as strong as it’s ever been.”

Although bridging as a solution has been around for decades, awareness seems to be growing among a new generation of property buyers. The Financial Times reported earlier this year that purchasers were turning to higher-interest bridging loans to get ahead of rivals in the highly competitive UK housing market, with its ongoing shortage of available homes. It referenced data from 12 UK bridging loan brokers showing that the value of funding, which buyers could use to secure a purchase, had risen by 8.5 per cent in the first three months of 2022, compared with a year earlier.

The Bridging Trends report found that loans were mostly used by those buying an investment property and those looking to fund a so-called chain break, for example, avoiding the need to sell one home ahead of another purchase. Borrowers also cited taking out bridging loans to pay an inheritance tax bill while waiting to sell an inherited property, or using the funds to renovate a dilapidated, unmortgageable property.

So, buyers are keen, it seems, to explore the potential of bridging – but what is the best advice that brokers might share with their clients in the economy? “Take stock of the situation and re-evaluate your wants and your desire to potentially use the funds for a purchase,” Jamie Jolly suggested. “Can you still make some margin out of that particular transaction, long-term? What we’re all going through at the moment with regard to rates and inflation, I personally see it as a relatively shortterm situation. If you look at the credit crunch, it was a three- to four-year period of difficult trading and unrest. The main significant factor at that time was there was a lack of liquidity, a lack of access to lenders. Although the rates are going up, access to funds is incredibly strong. Funding is not the issue. Products will change, but the appetite to lend is still there.”

Jolly said he likes to live up to his surname in his upbeat approach. “I think it’s important to be positive but diligent,” he shared. “We will transact our way through this. And I think the situation in which we find ourselves is short-term. I don’t see this [involving] a continuation of rate increases for the next two to three years.”

Summing up, he’s confident. “Bridging has been around for a number of years, but I certainly feel in the last decade it’s become more prominent in the market, more attractive, [with] more competition, which has led to a really healthy situation for borrowers because rates have obviously come down. What I personally like about working within this space is just the energy and its very fast pace. It’s quite challenging at times. It’s a multi, multi-billion-pound finance space and it’ll continue to evolve and continue to grow.”