No Brexit Deals and Bridging Loans

There are less than six months before the UK officially leaves the European Union. We are yet to see what kind of deal Britain will leave with. What does this mean for Britain’s alternative finance industry, especially the bridging market?

The Uk’s departure from the EU without a Brexit deal might mean a rise in interest rates. We have already seen the base rate rise to 0.75% in August, and the Bank of England is not expected to raise the rates until next year. However, the Bank of England may be forced to raise rates to defend the pound if no deal has been agreed upon. We have already seen the fluctuations of the pound since the referendum. Trevor Williams of Derby University has said that ‘bridging loans could become more expensive, as if the risk is greater, the lenders are likely to want better returns for them. He has also predicted a tougher environment for investors.

At the same time, some also argue that we may see a repeat of falling house prices, and the Bank of England might have to reduce rates and relax the rules around the housing market. KPMG, the accounting firm, argues that the Bank of England is unlikely to increase rates due to the uncertainty that looms over the economy.

Inter bay, the lender, has found that over 52% of brokers feel that reform to the tax legislation will boost the bridging market. 19% of brokers, according to Inter bay, felt that the removal of the 3% additional stamp duty for landlords would help to drive growth in the market. Some brokers also believe that greater regulation in the sector will boost growth in the bridging market.

The last decade has seen the rise of the alternative finance market to 4.6 billion. The government has made housing more affordable with help to buy and other schemes that have helped large construction companies. The smaller developers and investors have been turning to the specialist lending sector. Bridging and other specialist lenders offer them quick, short-term funds to get their projects started. The arrival of new or more lenders in the industry has meant more competitive prices than ever before. This has led to growth in the alternative finance industry.

To have continued growth in this sector, the focus should be to educate people about the availability of these options in the market, to educate them that mortgages are not the only option available to borrowers, or to educate brokers who shy away from alternative finance about the pricing and criteria.