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Bridging Finance

Richard Tugwell - The changing face of short-term finance

The bridging market has changed dramatically since bridging loans were first used half a century ago, initially as a way to mend a broken link in a housing sale chain.

Although still used for residential buyers who want to buy a house but are yet to sell their own, brokers, lenders and businesses have since seen the potential for a much wider use of this kind of finance.

When I entered the world of short-term finance, the perception of bridging loans was that they were expensive, complicated and a ‘last resort’ for people who had been declined by a bank.

As one of the market leaders, we’ve been striving to create a new perception; one of transparency and professionalism, which had been lacking from previous conversations around bridging finance, as it becomes more mainstream.

And it is having an impact. Overall, the short-term finance market is becoming something of a success story, with the number of loans written in the year to March 2018 up a huge 27.2% year-on-year, according to the Association of Short Term Lenders (ASTL).

The past

Today’s market is a far cry from bridging in the 1960s. Initially, bridging loans were only available to buy homes, so their only real use was for people moving. They were for customers who needed to ‘bridge the gap’ between buying their new house and receiving proceeds from the sale of their current property. In the 1980s a change in housing law drove the rise of the buy-to-let market, and a need for short-term loans to buy investment properties at auction or for landlords to refurbish rental homes. In these situations, securing bank finance was slow and short-term loans were the perfect solution to speed up the process.

Fast forward to the credit crunch in 2007, which caused shockwaves across the globe. Almost overnight, banks started restricting lending - creating a tough time for many in financial services - but providing a great opportunity for those working in the short-term lending sector. Well-established lenders like ourselves seized the opportunity and have taken the market to the next level.

Once very transactional and impersonal, short-term funding has become much more customer focused, and we are forging ever-stronger relationships with clients such as brokers because we want them to come back to us in the future.

Now, we are one of the largest short-term funders in the market for annual transactions, with more than 700 loans written between January and March this year alone, across our regulated and unregulated business, and a current short-term loan book of £976million.

Uses for bridging

We are regularly funding investment purchases and providing larger loans for high-net worth individuals such as Premiership footballers, as well as short-term finance for anyone from individual house-buyers to blue chip companies.

Short-term loans could just as easily be used for an auction purchase* or for a business to buy new equipment or to build up stocks ahead of an expected rush on seasonal orders, or for buying shares in another business. They can be used for refurbishment, conversions and development. For example, many commercial premises are now being converted into residential houses or flats, because of the expansion of permitted development rights and bridging loans can be used in the initial stages of the conversion with longer term funding provided once the building project has started.

The future

Just over a decade ago, there was a glut of short-term lenders in the market but the credit crunch came and only those with the most experience, and who looked after their customers throughout the crisis, survived.

It could now be the case that history is repeating itself. There have been a huge number of companies entering the short-term finance market over the past couple of years. Many of them are trying to get the loans out of the door as quickly as possible and it’s unclear whether they would survive in any future downturn.

What is more clear, however, is that those with experience, who lend prudently and responsibly, and who grow their businesses steadily, month-on-month, will whether the challenges which could come in the future.

*Your home may be repossessed if you do not keep up repayments on your property.