With an increase in British property demand and prices, there is growing pressure on banks and other financial institutions to supply funding for new property developments. Since the 2008 recession, banks have implemented new checks and restrictions to protect themselves when lending. New investors or property developers and those without a substantial portfolio struggled to fund their projects.
As a result, the bridging loan and property development finance industry grew, as more investors looked for quick and efficient financial alternatives. By 2016, the UK bridging loan industry grew to be worth £4bn. Here, we’re taking a look at the substantial growth of the bridging loan industry, what is behind this growth and whether or not it will prove to be sustainable.
Two important question are: What is behind the bridging loan industry’s substantial growth, and will it be sustainable?
The Credit Crunch
When the credit crunch hit the UK in 2007, the mortgage and other lending terms on offer became almost impossible for new property developers to meet. Homeowners and landlords alike struggled to obtain the finance needed, or to meet the new requirements put in place to protect banks from the impending recession.
Many investors and property developers turned to bridging loans and other finance alternatives to fund their projects. The Council of Mortgage Lenders came to believe that total annual lending in 2007 from traditional financial institutions was less than £1bn. However, the bridging loan industry began to grow year-on-year as demand increased.
Factors Contributing To The Growth Of Bridging Loans
The bridging loans industry has grown as a result of three factors; the first is a growth in consumer confidence. This means more people want to start investing in new projects and become property developers.
There is increasing demand for properties to be built, along with affordable housing developments. Existing property developers also grew in confidence.
With low rates and quick finance offered, developers are confident they are likely to make a profit. Since 2007, there has been a significant rise in housing prices, opening up the property market as a safe investment for a broad range of investors.
Predictions For The Bridging Loan Market In 2018
Despite Brexit supposedly impacting many sectors of the financial markets, the bridging loans industry appears to be relatively untouched. In fact, this specialist lending market has seen significant growth.
High street providers continue to shuffle their propositions meaning borrowers will find it increasingly difficult to access short-term loans to help fund or complete their projects. This means the demand for bridging loans is likely to continue throughout 2018.
Alongside increased demand, many regulated and unregulated brokers are beginning to build relationships with associations, helping to further improve the trustworthiness of the industry. With key areas such as the South East and London having already experiencing sustainable growth, Brexit may mean the housing industry will return to offer substantial growth patterns. Finance executives suspect Brexit will spark even more interest in bridging for other UK areas such as Manchester and Liverpool.
The flexibility offered by bridging finance is unparalleled, allowing developers to move from one project to another seamlessly. For that reason alone, 2018 is likely to see an increase in both competition and innovation in this financial sector.