Bridging loans: Bridging the gap

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There has never been more demand for bridging loans, and peer-to-peer lending platforms are ready to rise to the challenge. Michael Lloyd reports…

The bridging lending sector achieved a record quarter last year.

According to the latest data from the Association of Short Term Lenders (ASTL), in the last quarter of 2021 applications for bridging finance reached £12.7bn, while the value of completions hit an all-time high of £1.2bn.

These figures tell us everything we need to know about the demand for bridge lending products, and the urgency with which bridging finance is required in the post-pandemic, post-Brexit economy.

“The bridging market is continuing the momentum it has built coming out of the pandemic and there seems to be little sign of slowdown in the number of new enquiries that are hitting lenders and brokers,” says Vic Jannels, chief executive of the ASTL.

“Current indications from the market are that this growth trend is continuing.”

For peer-to-peer property lenders, there has never been a better time to branch out into bridging finance – and many are doing just that. Around a third of all UK-based P2P platforms currently offer bridging solutions.

Bridging loans are short-term loans that ‘bridge’ the gap between two transactions, for instance, to facilitate a smooth transition from one property development project to another.

P2P lending platforms are a good fit for bridging as they are quick and flexible and look at deals on a case-by-case basis so developers are more likely to get approved for finance if they have been turned down for funding elsewhere. More importantly, the speed of P2P credit decisions means that borrowers can receive their funds quickly, which is vital for bridging finance.

In fact, some P2P platforms started life as bridging lenders, before diversifying into other areas such as property development finance.

Kuflink is a former bridging lender turned P2P brand, and offers bridging loans which are suitable for residential, commercial, semi-commercial and auction purposes. It can offer a decision in principle to borrowers within two hours.

“We’re still seeing a fair bit of development, but we are trying to do more bridging as I think more brokers have seen us as a development lender due to the volume we have done over the past 18 months,” says Narinder Khattoare, chief executive of Kuflink.

“We like both but to get more bridging deals for us will be even better.”

At least 16 P2P lenders now offer bridging services to borrowers, ready to take advantage of a growing marketplace.

“Property market demand is strong, new build property demand is strong, the housing crisis means we’re a million houses behind what’s needed,” says Lee Birkett, chief executive of P2P bridging lending platform, JustUs.

“Most small- and medium-sized enterprise developers do some form of bridging.”

The bridging sector’s growth can also be explained by increasing awareness of the product and more developers requiring short-term loans to combat difficult conditions.

Brexit, the pandemic and war in Ukraine are all impacting supply chains and adding to rising inflation, while the price of building materials continues to climb.

However, P2P bridging and development lending platform Invest & Fund says that these are mostly logistical issues and a good bridging product can provide practical help for developers to navigate these challenges.

Read more: How P2P can help solve the housing crisis

“We believe the market is healthy, and we will continue to assist clients with these facilities at an ever-growing rate,” the spokesperson adds.

Most P2P property lenders provide bridging loans. This includes all of the new ‘big three’ – Assetz Capital, which has lent £1.4bn to date, Folk2Folk, with cumulative lending of £536.5m and CrowdProperty, which has deployed £261.6m.

In many ways, P2P and bridging finance make perfect sense together. Both specialise in offering short-term asset-backed lending with a quick turnaround of capital. P2P platforms have excellent underwriting processes which can deliver quick credit decisions with minimal risk.

The decision-making process can be made even faster when fintech solutions are deployed. JustUs uses open banking to better assess a borrower’s affordability, and Peer2Peer Finance News understands that HNW Lending is currently looking at the data-sharing initiative to view the track record of borrowers and make more informed credit decisions.

Speed is of the essence for bridging borrowers and P2P platforms are quicker, nimbler and more flexible than traditional high-street banks which can take up to six months to approve a short-term finance loan.

“Platforms can take a common-sense view, not a credit score, whereas a bank will just have a ‘computer says no’ answer,” says Birkett.

“P2P platforms are faster, better, more efficient, nimbler and more personal and flexible.”

However, despite the P2P sector being well-placed to service bridging borrowers, the sector is becoming quite competitive.

Assetz Capital’s chief executive Stuart Law says the cost of funding has “collapsed” for bridging while the number of lenders continues to rise.

“The number of competitors has gone through the roof, and there’s more and more institutional demand wanting to invest in bridging and loan values are going up,” he says.

“There’s too much money chasing too few investments and bridging is one of the big recipients of that money.”

Ben Shaw, chief executive of HNW Lending, says that his P2P property lending platform has struggled to compete with many lenders offering cheap money and hence has not completed as many loans.

“It’s not easy at the moment, there’s a lot of money out there facing a limited number of deals and we pay commissions to our brokers, so they want to come back to us,” he says.

“It’s a tricky market, we’ve not written as many deals this year as we would have liked. But we also have borrowers who used us before coming back to us.

Read more: EstateGuru raises UK lending target to £50-60m

“We’re doing the best we can do, but it is a more competitive market. I think we’re pretty much managing to satisfy investor demand, but we’re not expanding the loanbook in a way I would have thought all things being equal.”

In a saturated bridging market, platforms will be forced to adapt and carve out their niche. Some do this by working only with experienced developers to minimise risks, while others focus on offering lower-cost senior funding to their lender partners, and other platforms are opting to make their existing products more flexible and accessible.

LandlordInvest’s co-founder Filip Karadaghi says that his platform differentiates itself from others by offering a whole suite of products, from first charge bridging loans to mezzanine finance.

“Most bridging lenders are restricted in what they do, such as residential, or commercial or loan size,” he says.

Meanwhile, Kuflink’s Khattoare says that his platform does not compete on rates and instead is in it for the “long haul”.

“We’ve never been the cheapest or the dearest, we always work on service and referrals,” he says.

“We’ve always had a good presence. Unlike other lenders who become flush with funds, and lend out quickly without doing real due diligence, we’re in it for the long haul.”

For savvy platforms, there are a number of emerging opportunities to build their presence in the UK’s bridging market. Traditional lenders are pulling back their funding and taking a lower risk approach due to the rise in interest rates and inflation meaning the risk of default is higher.

JustUs’ Birkett believes that bridging lenders will not move into P2P lending because of “tight regulations” but he says that it makes “viable and perfect sense” for more P2P platforms to move into bridging.

“We’re expecting an increase in demand as banks tighten their credit scores and the property market remains buoyant still,” he says.

“Bridging will become a more important segment in P2P over the coming year. We’ve already seen buy-to-let funding lines being tightened, bridging funding lines will start to tighten up so that gives an opportunity for more P2P platforms.”

However, bridging is still not for every P2P property lending platform.

Relendex is one such lender – it focuses on development finance and only does the odd “incidental” bridging deal.

Executive chairman Paul Sonabend says that the platform works with professional developers and housebuilders and only provides bridging to create and maintain long-term relationships.

“We will give an established client a bridge loan and might give one to a new client if we see it as a way to create a longer-term relationship, but that is the extent of our activity in the bridge market,” he adds.

While there is no shortage of challenges, the fact remains that more than a third of all UK P2P platforms now offer some form of bridging finance. While for some it still remains a bridge too far, a rising number of P2P platforms are ready to capitalise on the significant opportunities available as the country gets back to work and starts building again.

Read more: SoMo appoints sales director amid “phenomenal” growth

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