Bridging loans – advantages for older borrowers

Bridging loans are increasingly becoming more of a mainstream lending product and there are growing opportunities for older people to take advantage of these products.

One of the reasons for this is that the mortgage market has changed substantially since the credit crisis struck in 2008.

Mortgage lenders have become more cautious and the Mortgage Market Review – also known as MMR – has had an impact. This review placed a strong emphasis on lenders taking into account the borrower’s ability to repay the loan.

In addition, the European Mortgage Credit Directive (MCD) has also had an effect on intermediaries and lenders.

However, bridging finance is largely excluded from the MCD despite the fact these products are now a mainstream offering.

Older borrows should find a bridging loan broker

They have grown in popularity because as lenders restrict their lending criteria which means mortgages and loans are more difficult to get, it has left a gap in the market for people who need to borrow substantial sums.

Indeed, many older people will have discovered that most High Street lenders will not make loans to people who are in retirement which means that they have to be more creative in sourcing lenders and meeting their requirements.

In many ways, bridging finance is a more useful route for older people to take if they are needing short-term finance but who may not meet the affordability criteria now being laid down by lenders.

The criteria which restricts access to mortgages and other financial products do not apply to bridging loans because interest payments are deferred until the loan is redeemed when the sale takes place.

How to find a bridging loan

For instance, with a promised mansion tax in the pipeline many older people may decide to downsize and move into a smaller home or a retirement premises.

With a bridging loan they can buy their new property while deciding what to do with their current home.

There is a definite trend for people taking out bridging loans and the numbers increased by 97% between the last quarter of 2013 and the final quarter of 2014.

That figure comes from the Association of Short-Term Lenders (ASTL) who say that while there is still some misunderstanding about what a bridging loan is and what it can be used for, especially by mortgage brokers who may not be so familiar with them, there is a growing understanding and appreciation of how effective they can be as short-term loans.

Indeed, the bridging loan market in the UK is now a competitive sector with new financial products and lenders coming to the market on a regular basis.

Bridging loans makes senses over a short term

The result is that interest rates have been driven down and are at their lowest for several years which makes a bridging finance product a viable option for those who may have considered them to be too expensive at some point previously.

The best way to find a bridging loan is to access it through the intermediary market since the products are generally marketed through brokers.

However, for anyone wishing to take out a bridging loan it is always a worthwhile exercise to ensure that the lender, and indeed the broker, are members of the ASTL since they are obliged to follow a strict code of conduct which ensures a high-level of transparency and service.

Bridging loan survey and Connaught deal

Legal issues ‘biggest obstacle’ for bridging loans

The biggest obstacle cited by brokers for slowing down bridging loan deals are solicitors, a survey by Regentsmead has found.

Most brokers lay the blame with solicitors for being the biggest issue for a bridging loan deal being completed quickly.

When questioned, one anonymous broker said that while it can be frustrating dealing with legal issues he pointed out that many forget that solicitors are protecting the interests of the client and of the lender.

Demand for higher LTV bridging loans

The development finance provider’s also revealed there is an even spread of demand for higher LTV (loan to value) loans, lower rates and for a quick turnaround on decisions.

A spokesman for Regentsmead said that while they were optimistic about the future of the bridging loan market their survey revealed that brokers were expecting growth this year.

He added: “We had a great response and excellent feedback to the survey.”

The firm says that the bridging loan industry should offer quicker responses to applications – Regentsmead will respond to an introducer within minutes and this should be a ‘standard’.

Nearly three-quarters of respondents praised the firm’s paying referral fees at the offer stage rather than waiting for the loan to be drawn down – and outstanding feature of the company’s bridging loan lending practice.

FCA drops talks on Connaught losses

Meanwhile, the Financial Conduct Authority (FCA) has announced that it is dropping its bid for securing compensation for investors in the collapsed Connaught Series 1 fund.

The fund, worth £118million, was the subject of negotiations between the FCA and its former authorised corporate directors Blue Gate Capital and Capita Financial Managers.

Instead, the regulator is now investigating the activities of both firms.

Investors lost out when the fund was suspended in March 2012 and then went into liquidation in September that year after investing in Tiuta, a bridging loan firm.

Connaught investors have compensation setback

Of the assets, investors have recovered £8 million so far.

The process for redress for investors was meant to end in October 2014 though this deadline was extended to January 2015.

In a statement, the FCA says it will now ‘formally investigate both operators’ and their activities in the failing of the fund.

The regulator added that it had been supporting negotiations between all parties for redress for the losses incurred by investors

The statement adds that there will be no further comment until their investigation is concluded and they have made a statement because of the level of ‘public interest’ in the issue.

The FCA statement also points that because a firm is under investigation does not mean they are offering a conclusion on whether ‘any wrongdoing has occurred’.

Value of UK’s bridging loan sector soars

The value of bridging loans being applied for in 2014 rocketed by 63% to £2.27 billion, according to the Association of Short Term Lenders (ASTL).

The organisation points out that the value of applications can tend to be volatile when analysed on a quarterly basis but they say the outlook for this year is ‘positive’.

The value of applications rose by 12% between Q2 and Q3 last year and again by 20% from Q3 to Q4.

Bridging loan book leaps in value

The ASTL says that the value of its members’ bridging loan book leapt by 54% year-on-year.

The organisation’s chief executive, Benson Hersch, said there was increasing uncertainty about the political outcome of the upcoming General Election and this could cause a ‘bumpier ride’ in the months afterwards.

He added: “Bridging is established as a valuable source of finance with intermediaries seemingly more aware of the benefits and are happier recommending bridging loans.

Bridge loan firms are ‘responsible’

“Our members are responsible and provide a reliable and responsible bridging service for homeowners and SMEs.”

The figures quoted by the ASTL refer only to their members, many are the key bridging loan lenders in the market, and they do not reflect the wider bridging lending sector as a whole – though they are fair indication of just how well the sector is doing.

Amicus – the new name for Capital Bridging Finance

Meanwhile, a desire to move into other financing areas has led to well-known short term lender Capital Bridging Finance changing its name to Amicus.

The move reflects the rapid growth of the business since launch five years ago, it trebled in size last year, and the new firm will deliver £150 million of new lending this year.

The firm’s managing director, Keith Aldridge, said: “The new name reflects our progress to extend our offering beyond bridging loans into development of other short-term lending types.

Amicus will extend reach from bridging

“This also gives us some flexibility in building on our proposition to deliver the same customer focus in other specialist lending markets.”

The company has been on the buyout trail in recent months, it bought Preston-based Mayfair Bridging and has recently bought Norton Folgate, the asset leasing and finance company which specialises in property, vehicle, marine and air finance.

 

Mortgage lenders lowering loan amounts

Borrowers looking for a mortgage in the UK will struggle to find a lender willing to advance a loan of more than 4.5 times their income because of new lending rules.

The latest lender to follow this trend is TSB who now follow in the footsteps of Barclays and Santander.

TSB now says its customers will not be able to borrow more than 4.5 times their annual income – until recently they allowed applicants to borrow up to five times their salary.

The bank says its decision has been made because of ‘changes in the market’.

Santander and Barclays offer lower mortgages

Santander led the way in adjusting its loan criteria and the bank will not now allow first-time buyers to have a mortgage that is five times their annual income.

The bank says that all loan applications must now be below 4.5 times income.

This isn’t the first time that Santander has restricted first-time buyer lending limits after reducing its criteria from 5.5 times income last year.

Barclays followed suit in January and dropped its criteria from 5.5 times income to less than 4.5 times.

More mortgage lenders will reduce lending criteria

At first the bank imposed the change on borrowers who had a deposit of less than 20% but this was soon changed to cover all borrowers.

Now mortgage industry experts say that other lenders will join this trend and reduce the amount they are willing to lend.

One reason for this imposition is that it’s the mortgage lenders delayed reaction to rules introduced by the Bank of England.

From last October, lenders cannot lend more than 15% of their homeowner lending to borrowers at more than 4.5 times their income.

Affordability test for mortgages more important

The move has come in for criticism from several mortgage industry experts who point to new lending rules brought in last year when using income multiples had less emphasis.

Instead, the new regulations placed more scrutiny on affordability with lenders having to focus on outgoings rather than just income.

The other issue for anyone looking for a mortgage using more than 4.5 times their annual income will find the number of willing lenders slowly reducing – the smaller financial firms will follow the larger lenders from the market.

Mortgage analyst Ray Boulger, who works at broker John Charcol, told the Daily Telegraph that they would follow suit because they will want to avoid being deluged with higher risk mortgage applications.

Other analysts are now predicting that by the end of 2015 no lender will be offering mortgages at 4.5 times income or above to any applicant.