The short-term sector needs long-term players, says Gareth Lewis, head of business development at Tiuta plc
When is a boom not a boom? Well, hopefully when it is referred to in the context of the bridging finance sector. Hearing the current demand for bridging described in ‘boom’ terms makes me worried given that ‘booms’ are often followed by ‘busts’ and, unlike Gordon Brown once pronounced, we have not seen an end to these.
Firstly, let me point out, that I do not believe the bridging market is in a ‘boom’ period anyway. Granted, there is more demand for bridging and short-term finance however this has not happened overnight to my mind a ‘boom’ is erected in double-quick time – usually without much understanding of why it is happening, and ultimately it is snuffed out because the foundations are not strong enough to sustain it. A booming market is doomed from the moment it is deemed to be booming, because it invites entrants and players who can only see the ‘boom’ and are completely unaware of the potential for ‘bust’.
Therefore I do not buy that bridging is currently ‘booming’ – yes we have seen a slow build up in demand for products and this type of finance and it will not take a genius to work out why this is the case. Even with mainstream banks committed to lending certain amounts to the UK’s small and medium-sized businesses this is but a drop in the ocean to what is currently required by the whole of UK plc. With this being the case, businesses/entrepreneurs/developers etc have to look elsewhere for their business funding and it has been bridgers like ourselves who have been able to fill some of the gap. However, that gap is still wide, and even with a strong appetite to lend, we and others like us, are never going to be able to fill it.
Often a sector is deemed to be ‘booming’ based on a considerable influx of market participants. Certainly, we have seen an increase in the number of lenders ‘active’ in the marketplace over the last 12-18 months however I have written the word ‘active’ like this because presenting yourself as being ‘active’ and genuinely offering finance can be worlds’ apart. Many new players make a considerable first splash when they announce their intention to ‘get into bridging’ however what level of lending are they currently achieving?
It would be interesting to know the actual amount of ongoing bridging lending that is actually being completed by all participants. We have one (somewhat flawed) status report each month from an industry association which shows the lenders who can currently be said to be placing larger levels of business. However this only really shows the lenders who are dealing with a small number of broker/introducer association members. If we do take these figures as a sector barometer though we can see that the same six or seven lenders appear in this rundown each month. We are not seeing huge swathes of lenders entering the marketplace and conducting phenomenal levels of business that would justify more following suit and a ‘boom’ bandwagon forming.
What we are seeing is a limited amount of new funding coming into the sector and a far greater level of competition than perhaps bridging stakeholders have been used to. But we are not seeing any kind of exponential rise in new lenders with seemingly bottomless pockets of money to lend and we are a long, long way away from the situation we had, for example, in the sub-prime market immediately pre-credit crunch when there appeared to be an enormous number of new entrants, all intent on using securitisation, and all looking to secure their place quickly in a ‘boom’ and, quite frankly, in it for a quick buck.
Therefore, I don’t believe the term ‘boom’ is applicable however this will not stop its use. My worry is by talking about bridging in these terms we ‘turn on’ those who may think there is easy money to be made to the detriment of all concerned. No one currently involved in this sector should be using these terms, regardless of whether you think the situation is sustainable or not.
The future is always uncertain however in the long-term I believe there will continue to be demand for our brand of finance – the fact is that the major banks, regardless of government-set targets, will not be forced back into lending in areas they don’t want to. This will be a truism for many years to come, and we should also remember that the bridging sector will also evolve – this is a moveable feast and the situation is fluid therefore who is to say that the sector won’t continue to strengthen. What we do need are market players who are in this business for the long-term and have a commitment to responsibility, strong processes and treating customers fairly and as individuals. If we can add to the numbers who chose this route then the picture for bridging looks particularly healthy.
