Expert expects the bridging market to expand further
Bridging lenders’ products have become more flexible and multi-faceted, processes are slicker and interest rates have dropped by around 50% since 2010, thanks to a steep rise in competition, according to Marc Callaghan, the newly-appointed head of specialist finance at OSB Group.
Pointing to a need for quicker access to finance, due to market conditions, Callaghan said he expected to see demand for bridging to rise further in 2023.
Callaghan, who assumes his new role at the specialist lending and retail savings group from April 1, said he anticipated increased take-up of bridging finance from buy-to-let landlords.
“We carried out extensive research of 2,000 landlords last year, which revealed a growing group of increasingly professional portfolio landlords we dubbed ‘Landlord Leaders’,” he said, explaining that these landlords tended to own multiple properties and were highly focused on energy efficiency.
Callaghan added: “Some 40% said they had already made environmentally-friendly upgrades to their property, and 35% planned to do so in future.”
With changes in the Energy Performance Certificate (EPC) ratings requirement coming into force this April, and further revisions under discussion, he believed the proportion of landlords professionalising and investing in property improvements was only likely to escalate.
As such, bridging could offer an ideal solution for financing property upgrades, particularly when funding was needed at short notice.
“The application-to-completion process can be swift, so improvements can be carried out quickly, minimising the impact on tenants,” Callaghan said.
He added that since bridging was flexible, it offered landlords the choice of paying off the funding in the short term, or extending over a longer period if necessary.
In the same way, bridging could be an option for financing conversions of residential homes to HMOs, a popular choice for student accommodation, Callaghan reasoned.
“Given UCAS’ forecast that university applications will have grown by almost 50% between 2022 and 2027, landlords undertaking such conversions are likely to be another strengthening source of bridging demand,” he said.
Callaghan also believed bridging would continue to play an essential role for those buying at auction, circumnavigating chains and downsizing.
“In a challenging market, we expect bridging to be a growing niche this year, and a solution which really should be part of every broker’s toolkit,” he said.
In terms of interest rate movements, Callaghan noted that the bridging sector was not immune to the influences affecting the mainstream market, of course, and the whole economy was suffering from uncertainty, but he believed borrowing costs were in the vicinity of a peak.
Bridging was perhaps unique in the mortgage market in that the headline interest rate of products was a much lower priority for borrowers than other considerations, with the main driver being speed, he said.
In the latest UK Bridging Market Study carried out annually by EY, the key considerations when choosing bridging finance were identified as speed of execution (61%), relationship management (36%), reputation of the lender (31%), funding flexibility (25%), transparency of pricing and terms (22%), low pricing (16%) and level of information required by the lender (12%).
“Of course, costs are important, but from a lender perspective we really need to ensure we are delivering in terms of turnaround time, clarity of communication and nurturing our broker relationships when it comes to bridging, which we believe will remain a growth area, despite the ongoing challenges in the wider market,” Callaghan concluded.
Do you expect the bridging market to see further growth in 2023? Let us know in the comment section below.
