ANNA LEWIS, HEAD OF SALES, SPECIALIST MORTGAGES AT HAMPSHIRE TRUST BANK
House price growth is slowing in many areas across the UK and many developers and investors are choosing to boost the value of their property portfolios by carrying out repairs and refurbishments.
As a result, we are seeing a boom in bridging finance, but will this continue and what does the future bridging landscape look like?
With Brexit looming large on the horizon, we recognise that there may be challenges ahead due to ongoing economic and political uncertainty. However, from our perspective, we are confident that the bridging market will continue to flourish. Indeed, this confidence is reflected by research from the Association of Short Term Lenders, which found that 78% of its members expect their business to grow, with almost all (93%) identifying the provision of short-term finance to SME housebuilders as a growth area.
We remain optimistic in the bridging sector in both the short and longer term. According to our SME Growth Watch research, the number of SMEs in the construction of domestic building sector has grown by 38% in the past five years, while the number of smaller firms in the renting and operating real estate sector – which includes buy-to-let – has risen by 16% over the same time period. This is positive news for the future of bridging as – with mortgages approvals taking longer – we believe developers and investors will increasingly look to short-term finance solutions to make the most of opportunities as they arise.
Regulatory changes are also set to lead to increased demand for bridging finance. From 1st April, government guidelines stipulate that “landlords of privately rented domestic and non-domestic property in England or Wales must ensure that their properties reach at least an energy performance certificate (EPC) rating of E before granting a new tenancy to new or existing tenants”. Properties that do not comply with these standards could require renovations and improvements and this is where bridging can help, enabling landlords and investors to get access to finance and make changes relatively quickly. The new EPC regulations will be rolled out to non-domestic properties from 1st April 2023, again providing another opportunity for the sector.
With house price growth slowing and regulatory and tax changes impacting margins in the buy-to-let sector, in particular, developers and investors are adding value to their properties by carrying out improvements. While there are a number of finance options available to carry out work of this kind, bridging is an attractive option for many, with lenders in this sector, including ourselves, providing levels of flexibility and speed of service that cannot be replicated by the high street banks. We believe the future of bridging will continue to be bright.