In just 10 years, between 2007 and 2017, the bridging loans industry has grown tremendously, with the total value of loans reaching a record high of £4.7 Billion in the 3rd quarter of 2017.
In 2007, the bridging loans industry was a niche market dominated by few wealthy individuals and a handful of lenders, a lot of which cannot be found today. These few lenders kept a tight rein on the market, fixing high interest rates of about 2% per month. Today, there are thousands of lenders, from small boutique firms to large companies and banks listed on the FTSE 250 who will happily offer an interest rate of 0.5% per month.
The growth has been spectacular, gross lending in the short term has more than tripled its size since 2007.
According to figures released by the Association of short term lenders (ASTL), short term lending accounts for a total of £3.5m per year. And if you consider UK Finance gross buy to let estimate for 2017 at £35 Billion, you will realize that short term loans of bridging loans now amounts to 10% of the regular mortgage lending.
The bridging loan industry has experienced such spectacular growth because of its flexibility and potential to adapt to the ever changing needs of borrowers.
The industry was formerly used principally to bridge the gap between selling a house and buying a new one. While still used for this purpose, the bridge loans market has evolved to meet the needs of other purposed. For instance, borrowers now use bridge loans to finance everything from buying properties at auctions to home improvements and paying tax bills.
James of BridgingLoans.co.uk – Bridging Loan Experts explains: “You don’t even need to be in the market for a property before applying for a bridging loan. The industry has expanded into new markets that cater for virtually any form of financing that requires short term loan. The growth in the industry is fueled in part by these emerging new markets for short term funds”
There are now lots of professional short term loan brokers that can negotiate great loan deals for borrowers. The increasingly tedious loan application process put in place by banks and lender companies and the increased consumer confidence in the real estate industry has spurred people to consider other options for funds needed to invest in the property market.
While not exactly a new concept, bridging loans allows borrowers to have access to funds for purchasing or paying for something that has a deadline. In essence, it allows them to bridge the gap between the deadline and when they would be able to raise the finance needed for the transaction.
Borrowers can get the money they need so that they don’t miss out on the opportunity, provided they have something to put down as security. They can then take their time to look for other sources of long term financing.
Even though the potential to sustain this growth is widely debated in financial circles, the projections for the economy shows a steady rise in the property market. This means more landlords, and this means more loans, and more potential for growth.
From all indications, the market is ready for more investments.