"So what will be the elephant in the room for 2016? Clearly, regulation"
Brian Rubins managing director of Alternative Bridging Corporation, casts his eye on bridging in 2016.
A VIEW FROM THE BRIDGE… It does not need the Hubble space telescope to look into the future of bridging finance and to forecast where it is going. As Neil Armstrong said: “one small step for man; one giant leap for mankind" and that will be true of bridging in 2016.
First, there will be an increasing demand for brokers with expertise in bridging finance. These specialists understand what lenders are seeking, how to propose the loan to them and to assist in the closing process. For the brokers who enhance their knowledge of bridging, the future bodes bright and sunny even in the depths of winter.
As in 2015, there will be the new lenders. Some will be brokers who organise groups of investors who can put together a few million, often those with surplus cash, who correctly believe that bridging finance is somewhere they can achieve a high return with little risk. And they are correct if their managers understand due diligence. Some do and others don’t! So new, small lenders may come, make a splash, run out of funds and then go: that is the way of the world.
My next prediction for 2016 is much more positive. As credit eases, it will first be available to the lenders with a proven track record to on-lend to end borrowers. These established lenders, with liquidity and strong marketing teams, will provide predictable underwriting, speed of response and certainty of closing and as a result will grow significantly in the year ahead.
Similarly the larger of the short-term lenders will continue to widen their offering and so provide a comprehensive service to brokers. As they mature, they will be making larger loans and whereas Alternative Bridging currently has an average loan of £900,000, this is forecast to increase to £1.5m in 2016 with loans between £250,000 and £10m.
So what will be the elephant in the room for 2016? Clearly, regulation; the subject no one wishes to embrace but the one they cannot ignore. This will now extend to second charge lending, not just 'secured loans,' another name for second charges for extended periods, but also for second charge bridging loans of six to twelve months. From next year brokers and lenders will need to grapple with affordability unless the property is being sold and as a regulated loan cannot be extended, the only way of obtaining repayment will be to institute recovery proceedings so creating a larger problem than the loan resolved.
Do not be dismayed, my two final predictions have happier endings. Next year there will be greater flexibility with loans akin to overdrafts available for up to three years where the advance can be reduced or repaid, then drawn again and again, whenever required with interest charged on the balance outstanding. Additionally, whereas smaller lenders may need to seek repayment after six months, the demand from borrowers will be to extend to up to 24 months which will be satisfied by the larger bridging loan companies
