Bridging Watch: common sense is our anchor


According to Bridging Trends data for Q2 2022, average short-term lending rates continue to decline, from 0.71% in Q1 to 0.69%; a long-standing trend, ranging from a slow rise over the decades to a steep decline in recent years as the market grew in competitiveness, size
and accessibility.

The question is when will short-term financial rates start to rise again?

Bridging lenders face a dilemma. Over the years, attractive rates have brought a wider range of consumers into the market, dispelling fears about this traditionally more expensive form of finance and enabling lenders to remain competitive with banks who, from from time to time also offer this form of financing.

Flexibility and sustainability will help the sector

However, inflation and rising costs could make these margins unsustainable, meaning rates could face a considerable hike, potentially undoing some of the goodwill gained over the years.

Whether it’s the need for new lines of funding, a growing urge to support the financial well-being of their own people, or increasing overhead as costs rise in all areas, there There’s too much pressure to suggest that transition rates won’t have to follow the traditional market and start moving up.

How will short-term lenders balance these pressures with the need to remain attractive to borrowers?

Context switching

Inflation is only part of the picture. With the rising cost of living, people’s finances will become more complex, from changing jobs and finding an additional source of income, to credit issues and possible debt consolidation.

Misinformation remains widespread among consumers and key players in the mortgage market

Meanwhile, the ever-present issue of exit routes weighs heavily on the market.

A responsible and sustainable transition depends on a clear and achievable exit, but in turbulent times, change can happen quickly. A sudden change in a buyer’s situation could jeopardize an entire chain, while a change in tenant demand or property prices could leave a developer short of those all-important final sales.

A complex economic environment may necessitate certain changes for lenders – increased caution when underwriting, reassessment of risk or higher contingency margins, for example – and there will be more instances where loans simply will not deemed viable.

But the solutions are already integrated. Short-term financing relies on human underwriting and common sense. Scrupulous lenders will be sure to keep an eye on their clients and help them through setbacks.

How will short-term lenders balance these pressures with the need to remain attractive to borrowers?

For borrowers who are unable to secure financing, in the best-case scenario, the right lender and broker will work to solidify the deal and make it more palatable; at worst, they at least avoid taking out potentially costly and unmanageable borrowing. This balance of flexibility and sustainability will help the sector continue to thrive.

As world events during the pandemic wreaked havoc on the home buying process and the stamp duty exemption caused a rush, many turned to short-term financing. Today, with price growth appearing to plateau but no guarantees as to when rates might do the same, buyers are eager to find a property and avoid delays.

The solutions are already integrated. Short-term financing relies on human underwriting and common sense

In turbulent times, there will always be a place for short-term financing. But this market still faces a considerable challenge: there remains widespread misinformation among consumers and major players in the mortgage market.

ASTL’s mission is to strengthen our understanding of the problem through in-depth research, which will be published at our annual conference in October.

Vic Jannels is chief executive of the Association of Short Term Lenders

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