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Insight into the trajectory of the UK Bridging Market

Farrbury Capital | August 22, 2019

Firstly, we need to start with what a bridging loan is. A bridging loan is a short-term loan (typically less than 18 months) secured against property. It is usually used by the borrower as a temporary financing solution, whilst transitioning to another financial arrangement or prior to selling the property. The most typical exit routes are either the sale of property, conversion to a long-term financial arrangement or redemption of the loan with operating cash flow.

In a market report carried out by Ernst & Young LLP, they referenced a Mintel forecast* which stated, “Mintel expect the strongest growth to be seen in the commercial and development markets, with residential bridging only growing at 5% CAGR”.

“The confidence shown in the current and future success of the short-term commercial finance market by global firms such as Ernst & Young, is the reason for such strong and consistent investment from both domestic and international demographics.”

James Hayward, Investment Director, Farrbury Capital Partners

Understanding the historical performance of the market up to the current day is important, however, we must also focus on the future, even more so in the current geopolitical climate. In the Ernst & Young market report, they state the long-term supporting factors as follows:

  • Strong history of housing liquidity and value creation in the UK, driven by shortage of housing supply.
  • Inefficiencies of mainstream lenders in providing short-term property finance because of increased regulation and capital requirements.
  • The need for a more tailored approach in this segment due to the focus on speed in property execution.
  • An influx of new market entrants that has serviced the borrower demand.

There are important factors to focus on prior to embarking on an investment like this, as the model is only as strong as the track record of the issuer and the security in place. Throughout Farrbury Capitals investment portfolio there is one main consistency, that is the security method. Despite in some circumstances, funds being raised for a particular project, they are not secured against that one asset alone, instead, funds are secured across the entire bank of the issuers unencumbered assets which are held under a debenture controlled by an FCA Regulated Security Trustee.

“The statements made in the E&Y market report only stand to support the increased demand for this level of short-term commercial financing. Between the years of 2013-2017 the market experienced a compound annual growth rate of 26.1%, amounting to a total of £4.3bn deployed as short-term financing in 2017*. This is due to the ever-increasing demand for residential schemes across the UK.” *WestOne Loans
James Hayward, Investment Director, Farrbury Capital Partners

For more information on our investment opportunities, please contact Farrbury Capital Partners by emailing info@farrburycapital.com or calling 0203 973 1510 for further details.