As a result of traditional financial institutions tightening their lending criteria, a broad number of investors and property developers are searching for an alternative in order to obtain funds for their projects. Due to this, financial alternatives such as the bridging finance industry has boomed, providing a number of new alternatives to those looking for funds quickly and efficiently. Despite uncertainty surrounding a number of socio-political issues such as Brexit and 2017’s buy-to-let changes, many lenders believe that 2018 holds positive signs that the bridging finance industry will boom. Here, we’re taking a closer look at exactly what 2018 holds for the bridging finance industry.
The Growth In The Bridging Finance Industry
According to a survey performed by the Association of Short Term Lenders (ASTL), more than 50% of lenders in the survey expect to see the market increase, and more lenders believed that their own lending would also grow in relation to this. In 2017, there was a 48% increase in enquiries for this particular type of finance (when compared to 2016), and the size of available bridging loans online also increased by approximately 25%. As restrictions from traditional financial institutions tighten even further, we’re likely to see this trend continue further throughout 2018.
Challenges The Industry Are Set To Face
While the trends appear to be in favour of the industry, there are some concerns about the viability of these loan types as a recent survey by the National Landlord’s Association states that 1/5 landlords are set to sell a minimum of one of their properties. This has occurred due to the increase in stamp duty surcharge, now at 3%, as well as the other withdrawal relief and stress tests which have also been introduced. This could also lead to landlords increasing the rent on their current property portfolio, which could put people off of renting in prime property development areas. As a result, the demand for bridging loan finance could decrease quite dramatically, if these figures remain accurate.
After the second-largest construction company in the UK, Carillion, collapsed under the weight of £1.5bn worth of debt, many lenders could look into potential property developer’s previous and ongoing projects in order to see if there are any links. It is these lenders which tend to offer bridging finance to those who are creating a new project, but with the ripple effect that Carillion’s liquidation could have, lenders in the bridging finance market could become stricter on those they are lending to.
This could have an impact on the current boom that the market is having, and as a result, pave the way for alternative P2P lenders to take hold of the market. Nevertheless, this angle could open new avenues for lenders looking to invest in the likes of HMOs and commercial projects, alongside cash flow injections for businesses who are experiencing issues.
As you can see, the bridging finance industry could open up a number of new doors for businesses and individuals looking to start in property development, as well as existing investors and property developers. Despite the likelihood of a number of challenges being faced, with Brexit set to come into play over the coming 12 months, if the trend continues in terms of growth for the bridging finance industry, 2018 could certainly be a positive one for the market