Bridging loan lending set to grow by another 50 per cent
It is thought that the amount of money being lent out through bridging loans could increase by almost 50 percent within the next 12 months. Other areas of lending, in particular residential mortgages and business loans, have reduced considerably when compared to the levels of lending prior to the credit crunch. Years on and many people are still finding it hard to obtain a mortgage in order to buy a home and many businesses are struggling to find business loans, because of limited funds and therefore tighter lending criteria and higher borrowing costs.
Finance sectors that have seen a rapid growth are bridging loans and also asset loans. The large growth in these areas of borrowing has caused some alarm to the Financial Services Authority and also the Office of Fair Trading, because they are concerned about people taking out unsuitable borrowing facilities that they can’t afford. These areas of borrowing have seen a significant growth because lenders see good profit in providing these facilities.
The amount of money being lent out for bridging finance has now exceeded one billion pounds, as people are turning to bridging finance because they don’t have any other options for raising the finance that they require. There has also been a huge growth in the number of asset loans being taken out. These are similar to bridging but use assets such as jewellery, cars and other valuable items as security for the loan.
Bridging loans are traditionally quick to arrange because they have flexible lending criteria due to the fact that the lenders are only looking to provide the facility for a short period of time, and are therefore not so concerned about how payments are going to be made over the long term, but want to know how the loan is going to be completely repaid in the short term. Although many bridging loan providers can arrange their facilities reasonably quickly, there are some who can be considerably slow and take longer to arrange a bridging loan than most mortgage companies take to arrange a mortgage. These slow lenders want the penny and the bun, cashing in on the higher rates charged for short term facilities, whilst at the same time being super cautious with no sense of urgency.
The main concern, especially amongst the industry watchdogs, is that people are entering into bridging agreements because they are desperate to fix a short term financial problem and are not looking at the long term situation. By using a bridging loan as a quick fix, people are probably making their financial problems much worse in the medium and long term, especially when you factor in all the costs and interest charges associated with a bridging loan.
Short term borrowing has its uses, and can facilitate personal and business deals that can make the borrower significant profits or savings. However, used incorrectly short term loans can prove to be very expensive and great care and forward thinking should be exercised.