The origins of the bridging loan market
Bridging finance is a relatively new product, having first became available in the 1960’s. Back then they were offered by banks and building societies for homeowner looking to buy a new house before the existing sale had completed.
It existed to ‘bridge the gap’ between the purchase and sale for homeowners, which is where the name is thought to have originated from.
The evolution of the 1980s
In the late 1980’s, due to a gap in the market, more funding lines became available. Buy to let investors used the product to refurbish properties before letting or to complete a transaction quickly or finance auction purchases. This was all sparked by the creation of Assured Shorthold Tenancies in the Housing Act of 1988.
The self-certification boom
Although not directly funded through bridging loans, this was a key driver in the next steps for the bridging industry – although very few recognised it at the time. In the early 2000s, High Street lenders had heavily relaxed their mortgage criteria and mortgage lending increased sharply as a result.
This saw rapid growth in property prices, as demand for property grew dramatically.
Unfortunately, such relaxed lending criteria lead to many people taking out mortgages that ultimately proved to be unaffordable. When facing financial difficulty, bridging loans came to the fore, with many borrowers taking out bad credit bridging loans while selling their properties.
The impact of the credit crunch on the market
The 2007 credit crunch saw the market grow yet further. As high street banks restricted mortgage lending, people turned to bridging finance to complete transactions that may have otherwise fallen through.
This was a much-needed time to provide liquidity to a market that was absolutely starved of it. Countless borrowers were able to maintain their place in a property chain due thanks to bridging loans.
On top of this, those who were still in a strong financial position were able to pick up bargain properties at a time when others weren’t willing to commit to purchases.
Moving out of the recession
The market was being choked under the duel impacts of a reluctance to lend by the High Street Banks, and increased regulation which made borrowing more difficult.
Here, bridge loans were again key in providing people with an alternative way to secure properties that they were keen to buy.
The growth of the bridging market and the modern day
Today, all types of short-term finance are extremely popular with homeowners and property investors alike. They’re popular with lenders too, offering far higher return on investment compared to traditional mortgages.
The lure of higher returns lead to a glut of new lenders entering the market and competing for applications. As is always the case, this increased competition held lenders to account – to survive, their service had to improve and the cost of bridging loans reduced.
In the current market, interest rates are low & products are flexible, some loans can even complete in a matter of days.