By Paresh Raja, CEO, Market Financial Solutions
By relative standards, the UK’s bridging sector is in its infancy. While bridging loan products have existed as a form of specialist finance in earnest since the 1960s, in truth it is only in recent years that the market has carved out a meaningful share of the finance industry.
A number of factors have underpinned this surge in growth. Market Financial Solutions (MFS) recently celebrated its 15th birthday, making us one of the elder organisations of the sector. In those 15 years, of course, the industry has changed immeasurably – marking this milestone as an opportunity to reflect on the fluctuating fortunes of the property market and the bridging sector within it.
In 2006, when MFS first began providing bridging loan products, there were a small cohort of lenders offering similar products in what was considered a niche corner of the financial services world.
Unfortunately, during those early years, the bridging industry, suffered with the of predatory lending. Indeed, one of the overwhelmingly positive trends for the sector in the time that has elapsed since is the shaking of this image, with bridging products now seen as a legitimate, worthwhile, and dependable source of finance among brokers and property investors.
The global financial crisis, which begun in 2007 and rumbled on for several years after, was a catalysed for change. As traditional lenders withdrew from the market or tightened their application criteria, many property buyers needed an alternative form of finance. At this time, bridging lenders were well-placed to meet this emergent gap in the market. As specialists in assessing the worth of individuals on a case-by-case basis, these organisations were at hand to afford those shut up by traditional credit lines with access to finance.
A sector in ascendance
Following this, the growth within the sector has been both impressive and sustained. Part of this is down to the fundamentals; offering convenient and flexible finance with increasing aptitude and efficiency to a broader base of borrowers, and becoming a genuine challenger to traditional lenders in the property space. Estimated figures suggest that the level of gross bridging finance deployed in the UK has grown rapidly in a short space of time. In 2010, for instance, £400 million in bridging finance was lent, but by 2019 the figure had breached the £4 billion mark.
The prospects looking forward remain encouraging. The property market was, like most sectors, no stranger to contrasting fortunes through the pandemic. At first there was an inevitable downward correction in the strength of loan books following the shutdown of the sector for large portions of 2020. Then came the stamp duty holiday and a frenetic period for market, with bridging loans playing a crucial role in support buyers looking to complete deals quickly.
A more diverse offering
Today, a large factor in the confidence in the bridging sector, and its sustained ability to go from strength to strength, does not sit only with the stability in its core offering. Increasingly, the bridging sector is evolving and exploring exciting new possibilities for growth, and meeting a broader range of applicant needs than ever before. Put simply, the sector is not only expanding in value and volume, but also in the diversity of its offering.
At MFS, for instance, the evolution of our product range from the early years to today is striking – and this is a development we see across the sector.
Bridging lenders have become adept at offering products to meet demand across the property sector. Residential, commercial, first-charge, second-charge, auction finance, BTL products, development exit products – the plethora of options at hand for applicants marks the sector out as a more adaptable alternative to traditional finance for a large number of potential clients with unique individual circumstances.
When comparing the bridging sector today with its standing before the credit crunch, it is evident that the sustained growth has been underpinned by not only the core values of the sector – flexibility and speed – but its willingness to innovate to meet new challenges. Where traditional lenders have often responded to the economic upheavals (such as the recession, Brexit and the pandemic), with risk-aversion and removal of products from the market, the bridging sector has been able to capitalise by tailoring new products to the changing needs of investors, and respond confidently to emerging opportunities as the market changes.
Naturally, given the competitiveness of the UK’s finance sector, this drive to innovate and improve must be maintained if the sector is to sustain its ascendancy. As the lending and property markets re-shape and develop together in the aftermath of the pandemic, careful assessment of changes in the market will be critical in staying relevant and reliable for the vast cohort of potential bridging clients. Given the excitement within the sector in meeting a number of significant challenges over the past decade and more, there is cause for optimism to think the sector can hold its momentum.
