Bridging the bear market
17 October 2011
A week or so back I gave a speech at the Association of Bridging Professionals' annual conference.
I kicked it off with a look at the infamous BBC interview with a certain Alessio Rastani, a bedroom trader and now box office hit.
Rastani basically laid bare how the markets work, how the moneymakers work. He didn't pull his punches, saying that he dreams about recession.
Essentially, what he was saying was that the more volatile the market, the more money he will make. Why? Because volatility and uncertainty, or bear markets, are the best environment for making money.
The point I was trying to make was that the exact same applies to the property market. The property market right now is volatile, uncertain, bearish - indeed, prices in most areas of the UK are under pressure. And because of this it represents an unrivalled opportunity to make money.
Of course, you can only make money within property if you have money to play with in the first case. And in many cases it's still damn difficult to get a loan from a high street bank for investment purposes. Which is where, I was keen to relay, bridging can help.
For starters, the bridging market has opened up considerably over the past 12-18 months. It's growing at a rate of knots. A number of new lenders have entered the market and the resultant competition is boosting the range of products and driving rates down. A few years ago, bridging rates averaged 1.5% a month. Now they're down to an average of 1.15% a month, which is a big difference.
Bridging is also proving more attractive because it's becoming faster than ever. For example, we were recently approached after an application had been rejected by a high street lender because the property didn't have a bathroom. We offered on the case within two hours of it being underwritten and it was completed, funds released, in under 48 hours.
Property investors are also being attracted by the increased innovation within bridging. Take the medium-term loan. This was a product created primarily for landlords, giving them the flexibility to buy now and the luxury of not having to refinance out for between two and three years. And at rates that are not far off those available on the high street. You can get two and three year loans up to 70% LTV at 8.99% per annum.
But bridging, I emphasised, isn't all about the investor. It's also about the broker. It's an opportunity for brokers to boost their incomes - and potentially significantly. The average proc fee on a normal mortgage is around 0.3%. With bridging loans, by contrast, the proc fee can be anything between 0.75% and 1.5%. That's a real difference to your income. And you also double up fee-wise when the borrower remortgages onto a standard term loan.
I wrapped up the speech by summarising what bridging brings to brokers and their businesses. Firstly - and most importantly perhaps - it brings business in. The mainstream mortgage market is still struggling and is unlikely to come back any time soon.
Secondly, the business bridging brings in is more lucrative. With proc fees often five times higher than those on mainstream mortgages, the revenue can be significant.
Third, bridging brings credibility. Showing your clients you can think outside the box and offer alternative finance solutions to their needs is a big tick in the box.
And finally, bridging enables your clients to monetize a market that is battered, bloody - but as Rastani made clear - full of opportunity as a result.