The Latest Trends in Bridging Finance: Uncovered at SKIPIM
It’s not every day you’re invited to The Shard. Normally £32 a ticket, the attendees of SKIPIM were treated to a view like no other.
As I pinged up the UK’s tallest building and stepped into the reception, I glanced around at my company for the evening.
Lots of hearty laughter, heckles and the clinking of glasses. But I was here on a mission! To uncover the hottest opportunities and threats in the bridging industry before they’d even been reported.
This was a search for intel. Notepad in hand, I approached some of the biggest names in lending and got interviewing.
Here are the seven towering insider trends I picked up:
1. Title splitting is the next big thing
For Dave Symondson, Director at DevBrok, Asset Stone and Assute Capital, one movement is rocketing ahead. “Title-splitting!”, he fired out. The group murmured in agreement. “Property investors are looking at more sophisticated ways of increasing value”, nods Adam Powell, Head of Business Development at the Property Finance Collective.
So, what is title splitting? “It’s when a freehold property is split into leasehold titles”, explains Michael Primrose, Managing Director of the Property Finance Collective. Owners can create and sell multiple leasehold rights. For example, a garden could be divided into plots.
As Symondson elaborates, in the current macro-economic environment, property owners “need liquidity”. Plus, some refinancing projects require titles. For bridging lenders swooping in on this burgeoning market, exciting deals could await.
But a word of caution. Housing Secretary Michael Gove came out strongly against leasehold ownership earlier this year. Slamming it as an “outdated feudal system”, he plans to cut back on how leasehold titles can be used.
2. Dwindling funds and high prices threaten lenders
Next on my journey, I encountered unofficial Michael Caine lookalike and CEO of The Mezz Lender, Simon Pollins.
Pollins revealed two stubbon roadblocks for lenders today, “One of the key problems is pricing”, he began. “The other is availability of funding”. Pollins is concerned that some lenders – although he assures me, not his own company – may need to go back on deals.
“With interest rates higher, some of the deals they looked at a year ago don’t make sense anymore”, Pollins elaborates. “Because the Loan-to-Value (LTV) of the property is too high”. According to one study, the average LTV for bridging lenders in Q1 2023 is 57.9%. By contrast, five years ago in Q1 2017, it was 46.2%.
The shifting LTV and diminishing funds could leave some lenders forced to go back on their word. For Pollins, this mark could the beginning of the end for them. “Reputation is everything”, he stresses.
3. Tug-of-war between established and emerging lenders
With a little help, I found the COO of AFIG, Stephen Burns. As one of the hosts, Burns was in serious demand, so our conversation was delightfully peppered with passersby chipping in.
“It’s a really weird landscape”, he began. “You’ve got this real divide of people pushing against each other. Established lenders are pushing LTV down and then you’ve got punchy lenders, pushing LTV higher… It’s a two sided-coin”.
“But, you’ve got to ask…”, Uliana Kuzmis, Deputy Managing Director of Hampshire Trust Bank jumps in, “these newcomers… are they going to stay?”.
It’s a good point. Established lenders are not convinced that bullish newbies will survive the storm. “There’s fear from lenders and funds in an economic crisis”, Burns shrugs.
“The problem we’ve got is two American banks going down in the past week!”, interjects Graham Ball, MD of AFIG.
But Burns isn’t fazed. “I’m not worried, because however much the lender lends, the market needs to fall a long way for the lender to be really stunned”, he adds. “There are signs and good lenders will see the signs. Lenders are not daft!”
4. Bounce back loans are not bouncing back
Squeezing through the crowd, I eventually located co-host Jordan Fearnley Brown, co-founder of Albatross Capital. Peeling away from guests, he talked to me about one of the major issues he’s concerned about: The “COVID hangover”.
Fearnley Brown believes schemes like the bounce back loans have burnt a hole in banks’ pockets, leaving them less able to provide funding lines.
“People don’t get their money back from government [when companies default]”, Fearnley Brown explains. “[Lenders] will never win. There’ll be hundreds of pages in the document to say how government doesn’t have to pay them back”.
It’s estimated that over 550,000 companies fell into liquidation after receiving bounce back loans. £28.3 billion is outstanding, while just £4.7 has been repaid. Barclays, NatWest and Lloyds were among the hardest hit, as they wait for repayments of £6.4 billion, £5.7 billion and £4.9 billion respectively.
5. Expensive materials push up re-bridging demand
“A lot of developers have problems with existing funding lines”, yelled Mark McBriar, Sales Director at AFIG. We’re standing near the bar and bellowing over the party noise. “That. Will. Create. More. Opportunities. In. Re-bridging!”, he shouts over the crowd.
“Materials are more expensive!”, ACHI’s Executive Director Keith Gannon joins in. “Labour is more expensive”.
Building materials cost 11% more in December 2022 than in December 2021.
The greatest price hikes are around insulation, gravel, sand, clays and kaolin. As of August 2022, the wages of construction workers have also increased by 6.3% on average, to keep pace with inflation.
“Times have moved on, values have moved up… People should get re-bridged!” nods McBriar.
6. Scrutiny on greenwashing
In a quieter corner, a cluster of lenders shared their views with me but preferred not to be named. They focused on how incoming sustainability regulations would shake-up marketing.
“How language is used” will certainly be impacted, said one lender. Financial services in the EU are already restricted in what they can term “sustainable”. The Sustainable Financial Disclosures Regulation (SFDR), Green Taxonomy and Social Taxonomy are some of many laws.
Here in the UK, Sustainability Disclosure Requirements are also in the making. The FCA will publish its final rules and guidance in the second half of this year.
For bridging lenders, this probably means they won’t be able to describe a loan as “green” for something like an efficient energy rating.
7. Still a desperate lack of diversity
Sometimes impactful moments happen in unlikely places. Heading home, I shared a lift with some slightly tipsy younger lenders. As they babbled loud introductions and fished out business cards, one joke caught my attention. “I don’t have a business card. I don’t need one. I’m the only woman in the company!”.
It hit me hard. Some years ago, when I worked in finance, I remembered making similar jokes myself. And it struck me that – despite all the research and equality campaigns – nothing much had changed.
For any managers reading this, I would encourage you to check that the women in your company earn the same as their male colleagues. Or if they are overdue a promotion. It’s probably the best way to retain women, and encourage diversity.
Strong stomach required
The lenders who clink glasses 310 meters above the London streets need a strong stomach – and not just for heights.
Market conditions are likely to worsen before they improve. Even as guests chatter, prices are rising, LTVs become outdated and banks hit the decks. But there are plenty of reasons to be optimistic too.
This event reminded me of the resilience of alternative finance and bridging lenders. They carve out new opportunities, and find better ways. Adaptability is built into the business model.
As I left, I pondered about the choice of building. Was it simply an unforgettable location? Or was it a metaphor for standing tall among headwinds and storms? I’d say, it was both.
Hannah Duncan is a freelance writer with a passion for finance, sustainable investing and fintech. She loves writing engaging content for industry magazines and investment services, as well as keeping a personal blog at www.hdinvestmentcontent.com