There is little sign of a slowdown – but there are challenges
The bridging market is continuing the momentum it built coming out of the pandemic, according to Vic Jannels (pictured), chief executive at The Association of Short Term Lenders (ASTL).
Jannels explained that there seems to be little sign of a slowdown in the number of new enquiries that are reaching lenders and brokers.
“This is great news, of course, particularly in the challenging economic environment, but there remains an ongoing challenge for the sector,” he said.
While enquiry levels are sky-high, Jannels said the proportion of those enquiries that go on to then complete remains relatively low. He explained that there are a number of reasons for this, such as it being the result of a single case being pitched to a number of different lenders, or via a number of differing brokers.
“Sometimes it is due to the customer changing their mind. In some cases, particularly in the current environment, it is because the reason why the bridging loan was initiated is no longer valid by the time the application progresses,” Jannels added.
The whole purpose of bridging finance is that it spans the gap towards a longer-term solution and Jannels said there will always be occasions where the longer-term solution, such as sale of a property or completing on a term loan, happens more quickly than expected.
“The longer it takes for a bridging application to progress to completion and release of the funds, the more likely that the short-term loan will no longer be required,” he said.
Consequently, he explained that the longer it takes for bridging loans to complete, the more likely it is that conversion rates will remain low.
Read more: Bridging numbers fall in Q1 2022
In a competitive market, lenders compete on service and speed of delivery, but Jannels said that, as we all know, the pace at which an application progresses is not influenced by lenders alone. It relies on brokers and customers providing any required information or documentation promptly and, importantly, external processes, such as the valuation.
“We know that the time taken to secure the physical valuation of a property is becoming more drawn out and the costs of valuations are also increasing,” Jannels said.
He added that after having spoken with professionals in this area, he believes the main cause of this is demand for valuations exceeding the supply of trained valuers. The average age of a valuer is now more than 60, with more people retiring from the role than joining the profession. This means that the pool of resource is dwindling, securing a valuer takes longer and, naturally, with the economic forces of supply and demand, it is becoming more expensive.
According to Jannels, this is a long-term problem and there is no simple solution.
“While we understand that it can be frustrating for lenders and for brokers that valuations are taking so long, we believe the best way to address the issue is through understanding and open communication,” he said.
He went on to add that another long-term issue facing the market is that of the minimum energy efficient standards for rental properties which are due to come into force in 2025. From then on, in order to let a property, the proposals are that it must achieve a minimum Energy Performance Certificate (EPC) rating of C.
Read more: Check your property’s EPC rating, homeowners are told
“We know that much of the UK housing stock is currently below this level and so changes to properties will be necessary in order for them to be compliant,” Jannels said.
As the deadline looms, Jannels explained that it is likely there will be a great deal of demand on the tradespeople able to carry out remedial work and the EPC inspectors to assess properties.
“So, it would be prudent to address the issue sooner rather than later with prospective buyers, so that plans can be made and finance sourced if it is required,” he concluded.
