Despite the sense of growing uncertainty in the light of Britain’s shock Brexit vote, history tells us that short term finance and, more specifically, the bridging sector, typically thrives in times of economic hardship, particularly when other forms of funding are less readily available such as during the credit crunch. However, although the Brexit vote inevitably unleashed a feeling of volatility, luckily this is a very different world from that of 2008.
The weak British pound which is said to have become more volatile than Bitcoin has continued to make the headlines and as a result, UK property will look even more attractive to the vast majority of overseas investors. In addition, thanks to strong underlying fundamentals, with housing supply still outstripping demand, it is more than likely that demand from developers will remain high. In light of this, it is possible that many investors will view the market as a relatively secure bet and a viable way to get good returns, unlock property chains and raise additional funds.
In my opinion the market is still very appealing because the risk is secured on a property which essentially means that although there is risk, it can be reduced significantly by a first charge. In addition, due to the ongoing housing crisis, renovating undesirable properties will continue to be a profitable and attractive business. Consequently, this will benefit the bridging market which has already increased to £3.6bn in February this year, up from £3.5bn at the end of 2015.
However, it is important to realise that alongside these opportunities lie challenges which must be overcome. For example, it is possible that overseas funding will dry up a little in the short term, ultimately leaving some bridging lenders with less funds to lend. In fact, some may even decide to reign in their LTVs in order to lower the associated risks going forward.
With the government’s housebuilding agenda set to take off, the construction sector which is set to bounce back and the speed at which bridging loans can be accessed, it is likely that we will see a successful few months for the bridging market which is continuing to go from strength to strength. This continued growth will be supported by the Bank of England which has signalled a £150bn lending boost, highlighting that if a borrower wants to borrow, banks will be there to lend.
Despite a time of turbulence in global markets, short term finance will continue to prove to be an enticing option for a significant proportion of investors here and abroad who are looking to protect their capital. It is therefore important that the sector continues to effectively monitor and reflect on the changing behaviours and preferences of borrowers during this turbulent period, to ensure the economy keeps moving forward, and lenders who have the correct structures and funding models firmly in place will be the ones who will ultimately succeed.
Kit Thompson is Brightstar Financial’s director of bridging loans