How Many Short term lenders are in the market and do we really need anymore?

How many short term lenders are in the market and do we really need any more??

Back in 2008, the world was a very different place.?

Why am I bringing this up today as we approach 2022??

The main message to contemplate in this article is: Do we really need more lenders in the short term loan market??

Let’s take a look at a brief history of 2008 and the relevance of this point today.?

2008 - The Credit Crunch?

Arguably the worst recession in living memory, a crisis that was actually housing market-led saw UK house prices fall on average 20% between 2007 and 2009. But this fall was recovered in a little over three years.

When the US housing bubble burst, those of us working in the industry remember very clearly just how quickly funding lines evaporated and US banks disappeared back across the Atlantic.

A large void was left. But into this space - slowly at first but then with ever greater momentum - grew a strong and vibrant specialist lending sector, underpinned by an unprecedented diversity of funding sources.

New lenders proved that they could thrive in any macroeconomic environment, many being founded and forged during a period of huge economic uncertainty.

This new breed of lender played a hugely significant role in financing the inherent dynamism of our property investors and SMEs and, in doing so, helped to ensure the UK bounced back from the financial crisis more strongly than virtually any other nation.

For bridging loan providers, the credit crunch presented a significant opportunity; banks quickly became more risk-averse and, in short, more reluctant to lend – products were pulled and the criteria that borrowers had to satisfy became more extensive, not to mention more rigid. Bridging lenders were on hand to fill the gap, providing specialist solutions to those unable to access traditional credit lines.

Today. 2021 & Beyond.?

As previously referred to as “new breed of lender” and today known as The Norm. The short term lender who once was born during a credit crunch and became a life line for many applicants and brokers still left in the market, is now a very common lender.?

There are north of 150 lenders in this space ranging from privately owned, to banking backed.?

These lenders are swimming in the same circles and pitching for the same clientele.?

But where does one go??

Many of these lenders have marginal differences from one another. Put another way, the products are much of a muchness.?

New entrants promise a new USP, a new angle, a gap filler, but ultimately it ends up looking like a regular short term loan with the same features.?

If you’re a broker or a packager, do you agree that we have MORE than enough lenders in this space and could actually do with a consolidation??

Do we need to have 150 short term lenders if many are very similar to one another??

Today we have seen a different type of crisis and how the bridging lenders have come to save the day once again.??

Mortgage Strategy highlighted MFS’s point on bridging loan demands during the pandemic:?“Simply put, the increased demand for loans resulted in either lengthy delays or buyers being turned away — and, for those buyers unable to secure the necessary finance quickly, there was every chance a rival bidder would take their place.

Buyers and investors needing faster alternatives turned to bridging finance in their thousands. Data from the Association of Short-Term Lenders shows that bridging completions totalled ￡1.1bn in the second quarter (Q2) of 2021, an increase of 23.2% on Q1.”

The ability to secure a loan in a matter of days enabled buyers to avoid protracted property chains and press ahead with an acquisition at pace — which was vital in a fiercely competitive market.

Ref: https://www.mortgagestrategy.co.uk/opinion/the-pandemic-has-highlighted-many-benefits-of-bridging-loans/

I am all for new entrants who try to solve a big gap in the market. Having fresh new lenders and funding is all well and good if it comes with fresh new ideas and products. There has been nothing new to speak of product or criteria wise for some time now and I think the industry is crying out for something different, something that sets them apart from the rest.

Innovation?

You can either approach this from the point of view of “If it ain’t broke don’t fix it” or “Innovation is the way forward”.?

Rather than having new lenders enter the bridging loan and short term loan space, would you rather have existing lenders upgrade their process, systems, and products??

I am of the opinion that existing lenders should have a refurb of their own. Lenders would benefit from truly listening to the broker community and their feedback. Although we have seen some lenders try their hand at being innovative with the launch of Hybrid Bridge Loan products that provide a longer term bridge loan designed as a BTL product, these are few and far between.

We as brokers don’t actually want more lenders to compete with you! It’s ineffective and it just ends up being a battle of who shouts the loudest and who pays the most.?

Rather, wouldn’t it be more efficient and effective to have a smaller pool of lenders who each offered something diverse and non competitive. Of course it’s good to have a few lenders who compete with one another on rates, proc fees etc. This is healthy competition and gives clients and brokers a choice.?

There is something to be said however about processes, software, systems and underwriting standards that improves the overall quality of the customer journey and the broker experience.?

For example, during the pandemic, as the demand for bridging loans increased, some lenders found themselves lacking the skilled personnel (underwriters), the right setup (working from home) and even some lacked the funding as they couldn’t keep up with demands.?

What do you think??

If you could wave a magic wand and have any bridging lender come into the market and provide you with the exact service and product you desire, what would that look like? Share with me in the comments below or via email in private, what you would like to see a bridging lender do.

Are you a new lender who we have totally missed? Do you feel that you have something truly diverse to offer the broker community and I have totally been off the mark with this article? If so, please let yourself be known to us. We want to hear from you.

Our aim as brokers is to find the best product for our clients. Best in price, process, outcome… everything!?

How can bridging lenders improve? Please submit your thoughts and suggestions and we shall release a new blog to feature these ideas (anonymously if you wish).?