For many industries, January can feel like a somewhat sluggish month compared to the buzz of Christmas and year end. But for the bridging industry, the start of 2016 is anything but a time for complacency. Following the sector’s unprecedented growth in 2015, brokers have a lot to look forward to and general sentiment is positive.
It’s no secret that 2015 saw an unexpected and much-welcomed surge in the value of bridging loans transacted. The prospect of a £3bn bridging industry is no longer a matter of ‘if’, but ‘when’, and if we consider the real depth of the industry, including the smaller boutiques and private lenders who are transacting within the space alongside more familiar names, I suspect we have far surpassed this milestone anyway.
In 2015 this growth continued in spite of a number of political changes, which threatened to decelerate the market. Looking back, we can certainly see a dip in activity either side of the General Election, but the market bounced back surprisingly quickly and, for many brokers, business was only temporarily affected. Similarly, the higher end of the market proved its resilience over the course of the year, as activity returned to normality following the stamp duty changes announced at the end of 2014.
Can we expect to see a similar rate of expansion in the industry during 2016? My view is that the market will continue to see solid growth over the next twelve months, and the industry is starting 2016 with confidence and anticipation for a positive year.
I also anticipate that the rate of new entrants will outstretch demand this year, and as a result some of the smaller boutique lenders may struggle to compete with the bigger, more established names. There may need to be some form of consolidation to ensure a sustainable market moving forward and this could come in the form of mergers and acquisitions, or even the exit of some lenders from the sector altogether.
That said, product rates are surely set to continue to fall with some lenders, bringing down the average rate. There are already a number of lenders offering products at rates below 1% and as competition intensifies, I anticipate lenders will continue to introduce more innovative products at ever-cheaper prices.
The new stamp duty rate on buy-to-let properties is on everyone’s minds at the moment and I think most professional landlords have taken the right approach in viewing the change as another running cost to business, with an objective and long term view applied. The market will undoubtedly slow once the rates come into effect in April, but this is not necessarily a bad thing. The bridging industry has proven its ability to bounce back from such economic factors, and a temporary slow in activity may be beneficial in the long run, as a means of avoiding a market bubble.
Although there is a lot on the cards for 2016, I expect the general usage of bridging loans and client-profiles to remain fairly consistent. The emphasis this year should be on maintaining the level of growth we have achieved in a sustainable way. The Mortgage Credit Directive is a step in the right direction in ensuring that amidst the excitement of the growing market, maintaining industry standards remains front-of-mind.
By Lucy Hodge, Director, Vantage Finance