Can the mainstream mortgage world learn from bridging?
- Bridging Finance
Latest figures from the Association of Short Term Lenders suggest bridging is up 39% year on year as growth of the sector continues. While I’m always loathed to use the term boom (which one can’t help but follow up with ‘bust’) it’s certainly the case that the sector is enjoying a buoyant time of late.
Unsurprisingly the increase in demand for short term finance comes at a time when other forms of finance are taking a hit. Buy to let, for example – a market which often shares the same customer base as the bridging market – is being somewhat strangled by government intervention. For portfolio landlords especially the process of accessing finance has become cumbersome and lengthy – two words that don’t sit well in the fast paced property investment market.
Meanwhile in the residential market lenders are still getting to grips with the increased regulation imposed on them as a result of the Mortgage Credit Directive (MCD). Indeed, even in the specialist arena, the impact of regulation is being felt. Second charges, of course, now come under the Financial Conduct Authority’s jurisdiction and criteria and affordability are feeling the pinch.
All of this, combined with the improvements in bridging products in recent years, has created the perfect opportunity for growth in the sector. Indeed, we saw a similar pattern of growth during the credit crunch years when much of the industry retreated from lending and bridging finance came into its own.
Of course, it’s not just the availability of bridging finance when other lenders are scaling back that makes it an attractive concept for borrowers. The sector’s approach to lending, flexible criteria and bespoke strategies for individuals has resonated with many customers in a market which some could say has moved on faster than many traditional lenders care to accept.
Indeed, bridging is now a vital tool for many borrowers and a popular form of finance. Yet despite its rise in popularity the product has lost none of the attributes associated with a more ‘specialist’ product – as a flexible, bespoke loan. So what can be learnt from the bridging market?
That age is no longer a critical factor
Of course responsible lending must be a priority but it’s also important to look at how we – as a society- have changed, how we make money and how we manage it. Traditional lenders are still considerably behind the times when it comes to age limits.
Even the FCA has called on lenders to consider ‘innovation in product features’ to cater for older borrowers after hitting out at lenders for not taking older borrowers into account more with their policies and proposition.
Age limits are particularly futile in buy to let where income – and therefore working age – should not have been an issue. Indeed, it’s only in recent years that some lenders have allowed a landlord to cover a shortfall with his or her own income so why it has ever been a consideration is beyond me.
That the way in which we work has changed
It’s almost unfathomable that this is a conversation we still need to have.
According to the Office for National Statistics Statistics there currently 4.8 million self employed people in the UK and that number is rapidly rising. That’s not to mention those people on flexible contracts, commission and other non-standard employment terms. Yet the availability of finance for self employed and non-standard workers is still pathetic.
Thankfully some lenders are relaxing their criteria, particularly smaller building societies, with Cambridge the latest to accept self-employed or contractors with one year of accounts but the market is still a long way off where it should be.
That repayment penalties don’t always stand to reason
Don’t get me wrong. I’m long in the tooth enough to understand why lenders impose early repayment charges (ERCs). It’s a business tool and we are, after all, all operating in a business environment. Losing customers regularly because they find a better deal early on could cause chaos for a lender’s books and borrowing. However, the ERC system currently in place certainly needs to be addressed, particularly if one is committed to the FCA’s TCF clause, given the uncertainty of the economy – and, indeed, the country. I’d like to see more mortgage lenders offering ERC free deals, to promote greater flexibility in the mainstream market.
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