Product evolution for age-old problems
By Brian Rubins, Executive Chairman
Introducers and lenders alike can choose to compete in a crowded marketplace or seek out new opportunities. It is true that because almost every bridging lender will lend on a buy-to-let or other residential investment, competition for these assets is rife and the main ways to increase market share are to reduce interest rates or increase the LTV.
One gap in the residential market, albeit a pretty narrow one, is regulated bridging. This applies to first charge mortgages on private dwellings that are currently, have been in the past, or will be in the future, occupied by the owner. To participate, lenders and brokers need FCA authorisation, which means that this represents a pretty big pond with fewer anglers. The loans can be complicated to process and limited in size, but for those with the authorisation and relevant skills, it is a less competitive market.
So, where is there a wider gap in the market, offering the crock of gold? One place is commercial bridging and term loans from £500,000 to £5M. There are fewer lenders active in this area and even less know how to underwrite beyond ticking boxes. Let me define commercial because our industry often includes residential investment under a commercial banner.
Real commercial lending applies to offices, retail, industrial and distribution, and then, of course, residential investment. Each has its own merits or challenges, particularly after the recent impact of both BREXIT and Covid, so now is a time to focus on what can be readily financed.
Experience has shown that retail units including hot-food takeaways and local supermarkets, as well as small office buildings, secondary industrial and warehousing have survived, and some occupiers have prospered during the pandemic. Accordingly, these are attractive assets to lend against and this applies to both those which are owner operated or let to investors.
It is important to be clear on what is on the “no list”. After all, why waste time trying to push a square peg into a round hole?
Except for a few specialist lenders, assets which are valued by a capitalisation of their trading income will be hard to fund. For example, filling stations, hotels, cinemas, night clubs, bars and restaurants. Further, trading in most of these has been affected by Covid and many are closed. Even those which are investments, let on long leases, are unlikely to be receiving rents during the lockdown and will be unpopular.
Also on the hard to finance list are farms, equestrian centres, smallholdings, etc. as well as hospitality and care homes, all because they are specialist assets and most lenders will not have the expertise to assess them.
Term loans may have their own challenges, particularly proving a borrower’s ability to service the monthly interest, but this provides an opportunity. On a positive note, Alternative Bridging Corporation has a five-year interest only facility where decisions are made by people and not algorithms and this provides opportunities to introducers who are struggling to find a listening lender in the mainstream market.
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Click here to read the article in the May issue of Bridging Introducer.
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