In these tough and volatile economic times, most people are aware that both secured and unsecured loans are on the rise, mainly as people look to make up for any drops in income through borrowing money. What is less known though is the rise in the amount of bridging loans that are also being issued, with a number of specialist companies now having to employ extra staff to cope with the demand being placed on them by members of the public eager to use their services.
It has been estimated by one company – West One Loans – that the UK bridging lenders will be issuing loans to the tune of £1 billion by the middle of 2013. In 2010 the bridging marker was worth approximately £700 million, but rapid expansion has seen a £50 million increase in this valuation just in the first quarter of 2011. What are the reasons for this massive rise in demand for bridging loans though and is every sector of the industry sharing the same optimism?
Well, the main rise for this increase is due to the housing shortage that is currently gripping the country. People are reluctant to sell their homes for the current valuations – which are extremely low – and therefore there is more competition for every house that goes onto the market. In order to win the bidding, a potential buyer must be able to come up with a good offer, which is often only achievable with the aid of a bridging loan. This is made even more obvious by the fact that many houses are being bought by those able to afford the current prices easily, such as property investors and those looking to buy to let. This means that the competition for homes is being driven up even further.
Another reason for the increase in bridging loans is the fact that there is the general credit crunch. In these tough economic times, lenders need to be extra cautious about the people that they lend to, as there is a greater risk of non-payment. This has caused a number of people to turn to loan companies to supply them with a bridging loan, so that they can quickly get together the money needed for a deposit on the home that they want to buy. Although this means often paying higher interest rates than a mortgage, it is the only option that many people have.
This optimism regarding the state of the bridging market is generally shared across the board; however the figures quoted at the beginning of this article are seen by many as the best case scenario. The AOPB have stated that the bridging market will grow, but they estimate that the industry is currently worth £306 million – more than half the figure quoted previously. More digging will need to be done by those in charge of regulating the industry to establish both the real current value and also the predicted value of the bridging sector.
So often it has been the most ignored area of lending, but now it seems to be really coming to the fore. It only remains to be seen whether its popularity will remain once the financial crisis has finally passed.