Economic and political conditions teamed with renewed consumer confidence in the country’s recovery are setting the scene for 2014 to be the strongest in seven years.
Cleary said: “Consumers are becoming more inclined to borrow as their confidence in the economy grows. Access to funding is improving, there is a political push to increase housing and the strength of the buy-to-let market means more demand for bridging loans.”
The Bank of England’s quarterly lending survey showed the total net consumer credit flows (excluding student loans) were positive in the three months to August. Consumers are beginning to feel secure enough to take on more credit resulting in an annual growth of credit card spending of 4.5% in August, the highest since February 2010.
The re-emergence of the buy-to-let market is another major driver of growth in the bridging market. Buy-to-let is on track to hit gross lending of £20bn by the end of the year with predictions of £25bn by the end of 2014.
Cleary said: “The buy-to-let market always drives the bridging market. A lot of bridging deals lead onto buy-to-let mortgages. More than half of the bridging loans we do turn into buy-to-lets after the refurbishment work has been carried out.”
Innovation and partnerships within the sector and in the wider mortgage market in the form of bridge-to-let products, whereby a borrower takes out a bridge to refurbish a property then converts it to a buy-to-let product, are bringing bridging products under the radar of mainstream brokers.
And the reduction in bridging rates is appealing to brokers who previously may have been concerned about recommending a bridge because of the cost.
“The feedback we are getting is that, as the price of a bridge is becoming more palatable and in tune with the price of a standard mortgage, more brokers are going to be more likely to recommend a bridging loan to their clients if it is the best fit for their circumstances,” said Cleary.
He added: “At 1.5% a lot of the network brokers are shocked by how much a bridge costs and won’t touch them. Since we came into the market with rates at 0.75% per month it has made other bridging lenders reconsider their pricing and start to bring rates down.
“The market is going to polarise. There will be three lenders in the future operating in the prime end of the market offering rates more mainstream. Us, United Trust Bank and a couple of others yet to join and it will all be based on cost of funds.
“Those lenders which can attract the best cost of funds will own the prime residential bridging market. All the other bridging lenders will have to deal with the loans which the more mainstream lenders don’t do or move into other niches such as commercial and land development – we are seeing this to an extent all ready.”
Cleary said he is expecting Aldermore to copy Precise’s pricing structure when it comes to the market with its bridging products next year.
Charles Haresnape, managing director of Aldermore Residential Mortgages, said: “I think the short-term finance market will increase again next year and continue its steady increase since the recession started.
“This is logical in a more optimistic housing market. There will be more auction purchases for both owner-occupied and buy-to-let and I think more bank lenders coming into this market will give added credibility.
“It is not just about interest rate competitiveness but also about suitable products. I see more linked products such as bridging coupled with a long-term loan and refurbishment deals.”
