Maintaining bridging business volumes might be tough
With mainstream interest rates declining in recent months, it’s questioned whether bridging rates are set to follow a similar pattern.
However, Chris Oatway, co-chief executive of mortgage brokerage LDN Finance, said he was not expecting for this to be the case because bridging lenders have very different funding models to the large high street banks.
“We have actually seen most bridging lenders having to increase rates due to the cost of their own funding, and this is not likely to come down with the base rate anticipated for a further rise,” said Oatway (pictured),.
He acknowledged that while lenders would seek to keep business levels up, without having to cut their profit margins, or go too far up the risk curve on deals, the economic outlook presented opportunities for the sector.
“It is hard to push for high leverage and where 75% loan-to-value (LTV), and sometimes 80% LTV, were previously standard for a number of lenders, these leverages are now saved for those deals that are seen as the lowest risk, such as development exit bridges with sales lined up,” Oatway said.
He added that commercial bridging lending had also reduced to 65% LTV as standard, with pricing increased here as well..
Oatway said that there are various opportunities for investors, which included being able to buy below market value for distressed assets, a requirement for re-bridging due to unexpected delays, and restrictive mortgage lending due to tightened lending criteria.
He said that these scenarios saw bridging finance provide an ideal solution for funding, which Oatway expected to continue over the course of the year.
“Something we have also seen an increase in is the overall value of commercial assets creeping down due to the current property market, combined with increasing interest rates,” Oatway explained.
In many cases, he said this was causing the interest rate to be close to the same level as the yield, which had made certain investments come under financial pressure. Oatway added that these investments then become less appealing to hold within a portfolio long term.
“As bridges can be generated quickly, clients are able to react to market conditions with speed, which is a real benefit currently,” he added.
Expectations
So far this year, and with the economy as it is, Oatway said everything was taking longer and the sense was that everyone was working flat out, but having to battle hard to get deals over the line.
“I can see transaction levels and business volumes continuing to dip due to the challenging market,” he added.
Oatway believed the key thing for the industry to focus on was efficiency, as he said those with the right systems, communication levels and ability to deploy funds, would be able to thrive.
“It would be beneficial for lenders to prepare for more rate rises and high levels of competition as the economic landscape continues to change, they will need to respond to the current market environment,” Oatway declared.
He reasoned that some lenders may be forced to take on more risk to secure new deals, but he added that being too aggressive could have dire consequences, so caution was needed right now.
“The bridging market has every potential to thrive in a tough market; however, with the current conditions, the importance of expert advice is essential for the betterment of the market, as well as the consumers,” Oatway said.
Are you expecting for bridging rates to continue increasing over the course of the year? Let us know in the comments below.
