Feature: Flexibility will strengthen the sector


The transition sector continues to be one of the success stories of the mortgage market in recent years.

The influx of new lenders has lowered rates, making the sector more attractive and degrading the image it once had of last resort credit.

A healthy appetite from investors and entrepreneurs has also contributed to the growth, so where does the industry go from now on?

Attract investment

“From a lender’s perspective, it seems like there is more money to lend than ever before,” says Amadeus Wilson, SPF’s director of short-term finance.

“A number of private equity firms have targeted the transition market, which has resulted in many new entrants with proposals quite similar to those of more established firms. “

Wilson believes the sector offers “juicy” returns with a relatively low barrier to entry, particularly on the unregulated side.

Bridging is so competitive these days

“The opposite would be said to create your own bank from scratch, for example,” he says.

The varied uses of the product undoubtedly reinforce the attractiveness of the sector among investors.

“Borrowers are using gateways to buy at auction, with more completions in this area than ever before,” Wilson adds. “Others use it to improve the property or to convert to a different class use, like turning a family home into an HMO. [house in multiple occupation] to help increase yield.

The wide choice of lenders also creates competition, according to Luke Egan, director of transition and development for Pink Pig Loans.

“We are seeing more and more lenders moving towards bridging products for hybrid development and refurbished to allow potential developers to access funds, with the best features of two very important products: transition and development. He said.

Continuous, sustained and reasonable growth is something we all want, and I think we will achieve it next year.

The growing demand for gateways is reflected in the latest figures from the Association of Short Term Lenders (ASTL). Bridge deliveries totaled £ 1.1 billion in the second quarter (Q2) of 2021, an increase of 23.2% from the first quarter.

Claims fell 1.7% to £ 7.36 billion but, overall, for the year ending June 30, 2021, they were still 26.9% higher than the previous year.

ASTL CEO Vic Jannels says the industry is doing very well.

“Not only does the market continue to grow and show signs of continued recovery as we emerge from the pandemic, the increase in completions also represents improved conversion rates, which is good news for brokers, traders, traders. lenders and customers, ”he said.

It is encouraging to see more and more people taking a real interest in the transition and we applaud this

In addition to the conventional uses of bridge finance for home improvement and HMO conversion, there has been an increased use of regulated bridging credit to exceed the stamp duty deadline, and also due to product innovations.

Jannels adds, “We are also seeing an increasing demand for development exit loans, as many programs take longer to complete. “

Go mainstream

The increased competition from lenders has triggered a rate war in the market. Figures from Moneyfacts show that monthly bridging interest rates started at 0.39% in October.

Wilson says there is so much money available to lend that there isn’t a big disparity in the prices.

“If a lender doesn’t agree to lend at a certain price, there will likely be other options at similar price points,” he says. “Fewer people are horrified when you mention the prices because the prices for bridges are so competitive these days. “

The increase in completions also represents an improvement in conversion rates, which is good news for brokers, lenders and clients.

Such low rates are one of the main reasons for the growing success of the industry.

“Bridging has traditionally suffered from a small image problem. We still have legacy issues, but I think it’s all going in the right direction, ”Egan said.

“Prices have never been lower, which makes it more attractive to advisors and traditional clients, and there is a lot of investment in FinTech designed to make consumers’ lives easier and more accessible. He said.

“More and more traditional brokers are taking over some of the simpler transactions themselves, or realizing that they can still make money just by referring offers to a packager,” he adds. .

Making sure advisors recommend the right product for the right reason should remain a priority

This is a trend that Together has also seen.

“Brokers are increasingly trained and better informed to deliver the right financial solutions to their clients, and gateways can help when speed is essential,” said Lorenzo Satchell, Account Director Specialist at Together.

“We have seen more and more brokers enter the transition space over the past few years to ensure that they can offer their clients as wide a set of options as possible in the face of fierce competition. Bridging should definitely be part of every broker’s toolbox, ”he adds.

As in any flourishing industry, brokers must remain vigilant.

The offer and legal processes can be quite different from traditional mortgages

“Any product that has a process in which advice is given by a third party is likely to be reviewed, because people will not always agree on what ‘Best’ looks like if it is not so. simple that “The lowest rate wins”. There are other customer requirements to consider, ”advises Egan.

“Making sure advisors recommend the right product for the right reason must remain a priority. It is not only a question of procedural costs or path of least resistance, ”he warns.

ASTL is working with the Financial Intermediary & Broker Association to provide a training program for brokers to help them understand the transition.

“It’s encouraging to see more people genuinely interested in the transition and we applaud that,” says Jannels. “A word of caution, however, to ensure that all aspects of the process are understood, as the legal offering and processes can be very different from traditional mortgages.”

Sustainable growth

Going forward, Egan believes the flexibility of the product will see it evolve based on consumer demand.

“I think the industry is going to grow stronger and continue to increase the number of consumers we serve, year after year, because it’s such a flexible product that can help anyone from first-time buyers to seasoned developers. There aren’t many other comparable products on the market, so with more education and awareness, we can start putting square pegs in square holes, so to speak, ”says Egan.

We are seeing more and more lenders moving towards transition products towards renovation and hybrid development

Responding to the needs of entrepreneurs is a likely focal point for the market over the next few months.

“I expect the bridge industry to continue to perform well as commercial acquisitions with the intention of converting into residential properties remain strong,” said Satchell.

This view, he says, is primarily based on the government’s relaxation of permitted development rights, which has streamlined the planning process for many real estate contractors.

“The face of Main Street will have changed dramatically as we fully emerge from the pandemic, once again offering lenders and intermediary brokers the ability to finance the conversion to residential and semi-commercial,” adds Satchell.

A number of private equity firms have targeted the transition market, resulting in many new entrants

Experts hope that the impressive growth of the sector over the past year will continue.

“Looking at the next 12 months, we are cautiously optimistic about the outlook for the market,” Wilson said. “We don’t expect prices to change and everyone is looking pretty positive.”

Jannels adds: “Continuous, sustained and reasonable growth is something we all want, and I think we will get there next year.

“There will be continued demand for bridging loans from investors and homeowners; and, as more brokers enter the market, more clients will benefit from access to flexible, short-term financing.

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