Looking back on 15 years of change in the bridging loan industry

The rise of the bridging loan sector has been one of the most significant and persistent trends in the UK property market in recent years. In most cases, the industry is still in its infancy, as this form of special financing has been on the market since the 1960s, but has only really gained momentum in the last two decades.

Market Financial Solutions (MFS) recently celebrated its 15th birthday and is one of the industry’s historic lenders. In those 15 years it has been interesting to see how the industry has changed, with the industry changing significantly.

When MFS first began providing bridge finance in 2006, before the global financial crisis irrevocably changed the real estate market and the way individuals had access to finance, there were only a handful of lenders in the industry offering similar products. In the schema of things, the sector was seen as a niche area of ​​finance.

In addition, caution was advised on short-term lending earlier in the decade, and the sector suffered from the stigma of “loan shark bias”. One of the more visible changes in the sector today compared to 2006 is that the sector has grown stronger and shattered the predatory lending label. Indeed, today borrowers and lenders rely on bridging lenders and products to meet a wide variety of needs, with the sector now legitimized as a useful source of real estate investment finance.

Why bridging funding has seen such growth

As mentioned earlier, the global financial crisis was a critical moment for the rise of bridge finance. After the mainstream financial crisis of the early noughties, banks became stricter and more conservative with their credit crunch products – especially in the mortgage sector. This risk aversion acted in the market as reluctance to lend to more complicated applicants, with products being withdrawn from the market and stricter criteria being set for borrowers.

The increasing rigor of lenders not only led to higher exams and tests of financial fitness, but also came with reverence for the sanctity of these new rules. Put simply, those with more unusual financial structures found it difficult to obtain approval from traditional lenders and had limited opportunities to explain the composition of their assets and, therefore, the worthiness of a credit facility.

This opened gaps in the market that agile bridging lenders could draw on. By specializing in the individual consideration of applicants and their financing structures, bridge financiers were able to gain impressive market shares through quick and targeted access to the real estate market when opportunities arise.

Accordingly, the fundamentals of these types of products have sparked sustained growth. Convenient and flexible financing efficiently provided to a variety of client needs has resulted in bridging lenders becoming a real competitor to traditional lenders in a variety of cases. In 2010 the value

the bridging loan in the UK was £ 400 million, and less than a decade later, the value provided had reached £ 4 billion in 2019.

Speed ​​and flexibility also underpin the bridging lenders’ competitive advantage. Because bridging loans can be approved and deployed in just a few days, rather than the weeks or months traditional lenders require, the sector is very attractive to investors who need to act quickly or are faced with complex financial circumstances.

During the stamp duty vacation, for example, this speed became a critical feature. The buzz within the market set deadlines for the program and the rapidly skyrocketing property prices meant that time was pressing. Bridging facilities played two critical roles here: strengthening real estate chains to prevent deals from failing when other sales stall, and allowing investors to close deals quickly to avoid being outbid or deadline for neglect the interest reduction.

Diversity and creativity – promises for the future

So the fundamentals of supply in the sector are largely unchanged. Instead, the bridge sector’s most promising trait and optimism about its continued growth lies in its creativity in responding to new market trends.

At MFS alone there is a marked difference between our current product range and the initial offer from 2006. Within the sector there is a diversification that has taken place in residential, commercial, auction financing and buy-to-let investments (BTL), development phase-out , Off-plan and any other conceivable investment opportunity. The key to providing a real “alternative” to traditional lenders is adaptability, and the bridging sector has proven it time and again.

To this end, the increased competition over the past 15 years has been a welcome development. While the interest wars could hamper the necessary focus on service quality, the entry of many new lenders into the bridge market has spurred innovation over the years. New products for different needs and new specialties on the way.

Just like investors, the providers of bridging loans also had to adapt to the times. From the changes in the BTL market in recent years to the challenges posed by Covid-19, there has never been room for complacency as lenders have had to keep evolving and improving.

If you compare the bridging sector today with its position before the credit crisis, it becomes clear that the success story is not only based on the attention to detail and flexible customer evaluation, but also on innovation in the market. While traditional lenders operate at levels that require risk aversion in the face of economic upheaval, bridge lenders have more freedom to examine the real estate sector for opportunities, a vital tool in propping up the real estate market and enabling better access to emerging opportunities.