Back before the credit crunch in 2008, the main high street banks such as HSBC, Barclays, Natwest, Lloyds and RBS were able to provide bridging loans to their account holders.
These banks used to provide bridging loans to customers looking for short term loan facilities. The most common facility, which bridging loans are best known for, was to maintain a place in a sale chain. This would be when money was borrowed on a short term basis to complete the purchase on a new home before the current one was sold. The bridging loan would then be repaid upon the sale of the current property.
Such loans would only be for a short time, possibly only for a matter of days to help fit in with completion dates, or months when a buyer for the property was still being found.
Maintaining a sale chain was the most common purpose that the high street banks provided bridging loans for. However they would also provide bridging for other reasons provided they were very secure. For example, a loan could be agreed to fill a financial gap whilst funds were awaited from the sale of a property or business, or whilst a client was waiting to be paid from a maturing investment.
These bank bridging loans would have been fairly short term. The banks were not comfortable with loan terms of a year or more, unless under exceptional circumstances. They would have been looking at providing facilities ideally for a matter of days or perhaps a few months, with a usual maximum term of 6 months.
In the years prior to the credit crunch in 2008 and the subsequent recession, the demand for bridging loans significantly decreased.
This was due to other attractive finance facilities, such as mortgages and secured loans, being so competitive, and easy to obtain due to the high number of self-certification products that were available. This meant that customers had some much better alternatives to choose from.
Then during the credit crunch in 2008, the big 4 banks, Barclays, HSBC, Lloyds and Natwest, along with most other banks, completely stopped providing bridging loans.
As we came out of the credit crunch and subsequent recession, the big banks never regained their appetite for short term bridging loans, so opted not to re-enter the bridging market.
The main reason for this was that bridging loans made up a very small proportion of the lending market and the big banks were more concerned about concentrating their resources on more popular facilities. Mortgages, business loans, personal loans, overdrafts and insurance products each account for a major proportion of a bank’s business and profits and this is where they prefer to concentrate their resources.
For the major banks bridging loans were no longer important due to the small amount of business that they represented. Therefore, during a time when the banks were keen to make cutbacks and implement cost saving measures, bridging loans were axed. This saved the banks from having to train staff and have suitably qualified advisors available at their high street branches, who would have been required to deal with bridging loan applications.
Bridging was a product that was in low demand, so was no longer financially worth the banks offering as a facility.
However, some of the large banks have kept themselves involved in the bridging loan market in other ways.
For example, Barclays Bank provides the funding required to a number of bridging loan providers, in order for them to subsequently provide direct bridging loans.
The demand for bridging loans has, however, hugely increased over the years since 2008, and this has seen new lenders pop up to provide bridging loans.
Some of these lenders have extended their range of products, from just providing bridging loans to also providing other financial products, such as residential mortgages, buy to let and commercial mortgages. Some bridging lenders have even gone as far as becoming banks themselves.
The only high street bank exception is Lloyds bank, who do provide some bridging loans.
However, this is limited to just their private banking customers, who in order to qualify need to have a minimum of £250k in savings or investments with Lloyds, or a Lloyds TSB mortgage with a minimum balance of £750k.
Despite the high street banks withdrawing from the bridging market since the credit crunch, as lending criteria for mortgages and regular loans has tightened, bridging finance has grown in popularity and the market for short term finance has flourished.
The growing bridging market has attracted many new lenders, in particular the challenger banks, to start providing short term finance.
As competition in the market grows, the interest rates and overall costs of having a bridging loan has decreased significantly. This in turn has further increased their popularity.
Last updated: 08 May 2020 | © KIS Bridging Loans 2020